Enbridge (TSX:ENB) is up 24% in 2024. Investors who missed the rally 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) portfolio focused on dividends and total returns.
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Enbridge stock price
Enbridge trades for close to $60 at the time of writing. The stock was as low as $44 in the fourth quarter (Q4) of 2023 and recently hit a multi-year high at $61.
Interest rates played a large role in the movements of the stock over the past two years. When the Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates in 2022 and 2023, the jump in borrowing costs triggered concerns that Enbridge might have to put dividend increases on hold or even cut the payout. The company uses debt to fund part of its growth program, which includes strategic acquisitions and development projects. Higher interest charges cut into profits and can reduce cash that is available for distributions to shareholders.
The rebound in the share price began late last year when the central banks signalled they were done raising interest rates. Expectations for rate cuts became the theme, and both the Bank of Canada and the U.S. Federal Reserve have reduced interest rates in the second half of this year. This provided added momentum to the rally in pipeline stocks and utilities.
Growth
Enbridge has also been on a shopping spree. The company recently wrapped up its US$14 billion purchase of three natural gas utilities in the United States, making Enbridge the largest natural gas utility operator in North America. Natural gas demand is expected to be strong in the coming years as new gas-fired power facilities are built to supply electricity for AI data centres.
Enbridge has also invested in export facilities to take advantage of rising international demand for Canadian and U.S. energy. The company bought an oil export terminal in Texas and is a partner in the Woodfibre liquified natural gas (LNG) terminal being built on the coast of British Columbia. In addition, Enbridge expanded its renewable energy group through the purchase of a solar and wind project developer.
Enbridge is working on a $24 billion capital program to drive revenue and cash flow expansion. In the third quarter (Q3) of 2024 earnings report, Enbridge confirmed guidance for 7-9% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2023 to 2026, with adjusted earnings per share expected to rise 4-6% and distributable cash flow growth of 3% on a per-share basis.
ENB dividend
Enbridge raised its dividend in each of the past 29 years. Investors should see ongoing annual increases that are in line with DCF expansion. At the current share price, investors can get a dividend yield of 6%.
Risks
Inflation in Canada and the United States moved higher in October. Donald Trump’s plan to raise tariffs on most goods entering the United States could drive a new surge in inflation as businesses pass on the extra costs to consumers. In this scenario, the central bank would likely put rate cuts on hold or even raise interest rates. This would be a headwind for Enbridge and other companies that use large amounts of debt to fund growth initiatives.
Time to buy?
A near-term pullback wouldn’t be a surprise given the strong rally that has occurred, and the uncertainty on how trade policy will unfold in the United States in 2025. That being said, Enbridge should be a solid buy-and-hold pick for a portfolio focused on high-yield dividends today. Any meaningful correction would be an opportunity to add to the position.
