Enbridge (TSX: ENB) is up more than 20% in the past year. Investors who missed the rebound 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 high-yield dividend stocks.
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Enbridge stock
Enbridge trades near $56 at the time of writing. The stock has regained most of the losses it incurred during the pullback from the 2022 highs that saw Enbridge slide from $59 to below $44 at one point last fall.
The drop broadly occurred in step with rising interest rates in Canada and the United States. Enbridge uses debt to fund part of its growth program, which includes acquisitions and development projects. The sharp increase in rates drove up borrowing expenses and triggered concerns that the dividend might have to be cut as interest charges consumed more cash.
The recovery in the stock started last fall about the time that the U.S. Federal Reserve signalled it was likely done raising interest rates in its effort to get inflation under control. Bargain hunters moved in on the anticipation of rate cuts in 2024.
The central banks started cutting rates in both Canada and the U.S. in recent months and are expected to continue the downward trend through next year. This should provide more support for Enbridge as it pursues its capital plan.
Outlook
Enbridge recently reported solid third-quarter (Q3) 2024 results and confirmed full-year guidance. The company completed its US$14 billion purchase of three natural gas utilities in 2024. The business will provide a boost to revenue and cash flow in Q4 and through next year. In addition, Enbridge has a $24 billion capital program on the go that will provide additional cash flow over the medium term as the new assets are completed and go into service.
Enbridge’s core oil and natural gas pipeline infrastructure remains strategically important for both the company and economies of the U.S. and Canada. The company moves about 30% of the oil produced in the two countries and roughly 20% of the natural gas used in the United States. With the addition of the three utilities this year, Enbridge’s natural gas assets are positioned well to benefit from anticipated growth in gas-fired power production that will be needed to prove the electricity required to run new artificial intelligence data centres.
On the export side, Enbridge owns an oil export terminal in Texas and is a partner in the Woodfibre liquified natural gas (LNG) facility being built in British Columbia. Finally, Enbridge’s growing renewable energy group should expand in step with the ongoing energy transition that is taking place in North America and Europe.
Dividends
Enbridge will likely raise the dividend for 2025, extending the dividend-growth streak to 30 consecutive years. Investors who buy ENB stock at the current level can get a dividend yield of 6.5%.
Should you buy Enbridge now?
Investors should expect to see some volatility in the near term after the big rally that occurred over the past year. Bond markets are signalling expectations that rate cuts in the United States might not occur as quickly as previously anticipated.
That being said, investors seeking a solid, high-yield dividend stock for a buy-and-hold portfolio should be comfortable owning ENB at this level and could look to add to the position on a correction.
