1 Magnificent Dividend Stock Down 15% to Buy and Hold Forever

Enbridge is off the 12-month lows but still trades at a large discount to its 2022 high.

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Enbridge (TSX:ENB) picked up a tailwind in recent months, but is still down about 15% from the 2022 high it reached before rate hikes in Canada and the U.S. drove investors away from the energy infrastructure giant.

Investors are wondering if ENB stock remains undervalued and is good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) targeting high-yield dividends.

Enbridge stock price

Enbridge trades near $50 per share at the time of writing. Bargain hunters started to move into the stock last October when it dipped to $43. More upside could be on the way, and it wouldn’t be a surprise to see ENB stock hit $60 in the next two years.

Interest rates are expected to decline in Canada and the United States in the coming months as the central banks feel more comfortable that inflation is under control. Enbridge uses debt to fund part of its large growth program that includes acquisitions and development projects, so reduced borrowing costs will improve profits and make more cash available for distributions.

Assets

Enbridge is known for its oil and natural gas pipelines. The company moves 30% of the oil produced in Canada and the United States and 20% of the natural gas used by American homes and businesses. These assets will continue to be very important in the coming years as Enbridge expands its asset base to include oil and natural gas liquids (NGL) export facilities. In addition, Enbridge is positioned to benefit from increased spending on wind and solar power projects through its purchase in 2022 of Tri Global Energy, a renewable energy developer in the United States. On the gas side, Enbridge is set to become the largest natural gas utility operator in North America as it wraps up its US$14 billion purchase of three natural gas utilities in the United States this year.

Global demand for North American energy is growing as countries seek out reliable sources of fuel. Natural gas demand is expected to jump as rising electricity needs from AI data centres drive expansion of gas-fired power generation.

Growth

In addition to the acquisitions, Enbridge is working through a $25 billion secured capital program. As new assets come online and start generating revenue, Enbridge expects distributable cash flow (DCF) to grow by 3% annually through 2026 and by 5% per year after that timeframe.

Dividends

Enbridge has raised the dividend in each of the past 29 years. The board gave investors a 3.1% increase for 2024, and ongoing dividend hikes should be in line with the DCF growth. Investors who buy ENB stock at the current level can get a 7.3% dividend yield.

The bottom line on ENB stock

Ongoing volatility should be expected until the central banks begin to cut interest rates. That being said, Enbridge looks attractive at the current price, and any additional pullbacks should probably be viewed as a buying opportunity. If you have some cash to put to work in a buy-and-hold portfolio focused on high-yield dividends, this stock deserves to be on your radar.

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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