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

Enbridge is down about 10% in the past year and now offers a dividend yield above 7.5%.

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Enbridge (TSX:ENB) is down about 10% over the past 12 months. Retirees and other investors seeking reliable passive income are wondering if ENB stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on high-yield TSX dividends.

ENB share price

Enbridge (TSX:ENB) trades for less than $48 per share at the time of writing. That’s down from a high of around $59 at the peak in 2022 before the Bank of Canada and the U.S. Federal Reserve started to aggressively raise interest rates.

Enbridge is working through a $25 billion secured capital program backlog and is in the process of closing US$14 billion in acquisitions. The company uses debt to fund part of the growth program, so the jump in borrowing costs over the past two years can impact profits and the amount of cash that is available for distributions.

In the United States and Canada, inflation is down from 9% and 8%, respectively, in June 2022 to 3.5% and 2.9% in March 2024. The central banks would like to see inflation drop back to 2% before they start to cut interest rates, so rates might remain near current levels through this year. Economists, however, widely expect rate cuts to begin at some point in 2024 as the central banks attempt to navigate a soft landing for the economy. As soon as interest rates start to decline, Enbridge could pick up a new tailwind.

Outlook

Enbridge has pivoted from building large new oil pipelines to investing in other segments of the energy infrastructure industry. Exports, natural gas utilities, and renewable energy are areas where the company sees opportunity.

The capital program and acquisitions are expected to drive higher revenue and cash flow expansion in the coming years. Enbridge is targeting 7-9% average annual growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) through 2026. Distributable cash flow (DCF) per share and earnings per share (EPS) are targeted to grow at 3% annually over that timeframe. Beyond 2026, management says EBITDA, DCF, and EPS will grow at roughly 5% per year.

Dividends

Enbridge raised its dividend by 3.1% for 2024. This is the 29th consecutive annual increase in the payout. The anticipated growth in cash flow over the coming years should support ongoing dividend hikes in the 3-5% range.

At the time of writing, Enbridge offers a 7.65% dividend yield.

Should you buy ENB stock now?

Investors should anticipate ongoing volatility until the Bank of Canada and the U.S. Federal Reserve indicate they are going to start lowering interest rates. That being said, ENB stock already looks cheap at the current price given the anticipated EBITDA and DCF growth and you get paid well to ride out additional turbulence.

If you have some cash to put to work in a TFSA focused on high-yield passive income, this stock deserves to be on your radar today.

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.

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