Enbridge (TSX: ENB) is up about 10% in recent weeks. Investors who missed the bounce are wondering if ENB stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on passive income and total returns.
Enbridge stock price
Enbridge trades near $50 per share at the time of writing. The stock was close to $45.50 in the middle of April and traded as low as $43 in the past 12 months. It wouldn’t be a surprise to see the share price trend back to the 2022 high near $59.
Enbridge’s price slide over the past two years occurred as the Bank of Canada and the U.S. Federal Reserve raised interest rates to slow down the economy to get inflation under control. Enbridge uses debt to fund part of its growth program, so higher borrowing costs can make some potential projects unattractive. In addition, a jump in debt expenses puts a dent in profits and can reduce cash available for distributions to shareholders.
Canada’s inflation was 8% in June 2022. The April 2024 report shows inflation slowed to 2.7% last month. South of the border, American inflation was 9% in June 2022. It came in at 3.4% last month. Progress is being made with inflation expected to continue to trend down toward the 2% target. As a result, economists broadly expect the central banks to start cutting interest rates in the second half of 2024 to avoid pushing the economy into a recession.
Once rate cuts begin, there could be a new surge of investor interest in Enbridge.
The company expects to wrap up its US$14 billion acquisition of three American natural gas utilities in 2024. Enbridge also has a $25 billion capital program on the go that will help drive additional revenue growth. Management expects distributable cash flow (DCF) to expand by 3% annually through 2025 and by 5% afterwards.
Dividends
Enbridge increased the dividend by 3.1% for 2024. Investors should see dividend growth continue in line with the growth in DCF. The board has increased the payout in each of the past 29 years. Investors who buy ENB stock at the current level can get a dividend yield of 7.3%.
Should you buy ENB stock now?
Ongoing volatility should be expected until there is clear evidence the central banks are going to cut interest rates. That being said, Enbridge pays an attractive dividend right now that should continue to grow, supported by the capital program and acquisitions. At the very least, you get paid well to wait for more upside.
If you have some cash to put to work, this stock deserves to be on your radar.
