TFSA Passive Income: Is Enbridge Stock a Buy, Sell, or Hold?

Enbridge now offers a yield near 8%. Is the dividend safe?

| More on:
Gas pipelines

Image source: Getty Images

Enbridge (TSX:ENB) now has a dividend yield of close to 8%. Yields that are this high often signal market concerns about the sustainability of the distribution. Investors are wondering if ENB stock is now simply undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income of total returns.

Enbridge share price

Enbridge trades for close to $46.50 at the time of writing compared to the 12-month low of around $43. The stock was as high as $59 at one point in 2022 before markets started to worry that aggressive interest rate hikes by the Bank of Canada and the U.S. Federal Reserve would drive debt expenses too high.

Enbridge and other pipeline companies use debt to fund their growth initiatives. New assets often cost billions of dollars to build, and projects can take years to complete before the pipelines or facilities begin to generate revenue. Funding the projects is usually done through a combination of cash flow from operations, stock sales, and debt. When borrowing costs surge over a short timeframe, profits can be hit as more cash flow has to be used to service debt.

Enbridge is working through a $25 billion capital program and continues to make acquisitions. The company expects to close its US$14 billion deal to buy three American natural gas utilities this year. These businesses generate reliable and predictable cash flow that will help diversify the revenue stream. Enbridge will become the largest operator of natural gas utilities in North America. The combination of the natural gas distribution businesses with the extensive natural gas transmission network places Enbridge in a good position to capitalize on the anticipated transition to hydrogen.

In recent years, Enbridge has focused on broadening out the asset base to tap emerging opportunities. The company purchased an oil export terminal in Texas, took a stake in the Woodfibre liquified natural gas (LNG) facility being built in British Columbia, and bought a U.S. developer of solar and wind projects.

Earnings

Enbridge delivered solid results that met guidance in 2023. Adjusted earnings came in at $5.7 billion, matching the 2022 performance. Distributable cash flow (DCF) rose slightly to $11.3 billion from $11.0 billion the previous year.

DCF is expected to increase by about 3% in 2024, supported by contributions from new assets put into service and recent acquisitions.

Dividend

Enbridge increased the dividend by 3.1% for 2024. This is the 29th consecutive annual distribution hike from the board. Based on the strong capital program, ongoing acquisitions, and the solid revenue outlook, the dividend should be safe. Investors can currently get a 7.9% dividend yield from Enbridge.

Should you buy now or wait?

Ongoing volatility should be expected until the Bank of Canada and the U.S. Federal Reserve start to cut interest rates. That being said, Enbridge already looks cheap and offers an attractive dividend that should continue to grow. Existing investors should probably hold the stock. New investors might want to take advantage of the latest dip to start a position and look to add more on further weakness. Once interest rates start to decline, this stock could catch a nice tailwind.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew  Walker owns shares of Enbridge.

More on Dividend Stocks

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

REITs with modest amounts of debt, like Killam Apartment REIT (TSX:KMP.UN), can be good investments.

Read more »

Technology
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

Some of the smartest buys investors can make with $500 today are stocks that have upside potential and pay you…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend Stocks to Buy in April for Safe Passive Income

These TSX Dividend stocks offer more than 5% yield and are reliable bets to generate worry-free passive income.

Read more »

protect, safe, trust
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $1,000

If you've only got $1,000 on hand, that's fine! Here is how to make a top-notch, passive-income portfolio that could…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

thinking
Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »

woman analyze data
Dividend Stocks

My Top 5 Dividend Stocks for Passive-Income Investors to Buy in April 2024

These five TSX dividend stocks can help you create a passive stream of dividend income for life. Let's see why.

Read more »

investment research
Dividend Stocks

5 Easy Ways to Make Extra Money in Canada

These easy methods can help Canadians make money in 2024, and keep it growing throughout the years to come.

Read more »