Enbridge (TSX:ENB) is up about 24% in the past six months. Investors who missed the big 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) focused on dividends and total returns.
Enbridge share price
Enbridge trades near $59 at the time of writing. The stock is down from the multi-year high around $62 it reached in recent weeks and now trades pretty much where it did in the summer of 2022 before the Bank of Canada and the U.S. Federal Reserve started to aggressively raise interest rates to get inflation under control.
Rising interest rates in 2022 and 2023 caused concern that Enbridge might have to trim its generous dividend to free up cash to cover higher debt expenses. The pipeline giant uses debt to fund its growth programs, including acquisitions and capital projects.
A quick look at the stock chart shows that investors started to buy ENB stock again late last year when the central banks announced they were done raising interest rates. The boost to the share price in the past six months occurred as the Bank of Canada and the U.S. Federal Reserve began to reduce interest rates.
2025 outlook
Additional rate cuts are expected in the two countries next year. However, inflation has ticked up in the United States in the past couple of months, and the American jobs market remains in good shape. The central bank recently indicated it only plans to make two small rate cuts in 2025. If Donald Trump implements widespread tariffs on imports, inflation could sure as businesses pass the costs on to consumers. In that scenario, the U.S. Fed might have to put rate cuts on hold or even move rates higher. This would likely put new pressure on pipeline and utility stocks.
That being said, Enbridge should deliver solid operating results in the coming year. The company wrapped up its US$14 billion takeover of three American natural gas utilities in 2024. Revenue and cash flow from the businesses will help drive better full-year results in 2025. Enbridge is also working on a $27 billion capital program. As the new assets are completed and go into service, the revenue and cash flow gains should support steady dividend growth.
Dividends
Enbridge recently raised the dividend, marking the 30th consecutive year of dividend growth. Investors should see ongoing distribution hikes in line with anticipated growth in distributable cash flow of about 3% per year over the medium term.
At the current share price, ENB stock provides a dividend yield of 6.4%.
The bottom line on ENB stock
Enbridge is a good example of a top TSX dividend stock with a high yield and a distribution that should continue to grow. Near-term volatility is likely until there is clarity on U.S. tariffs next year, but buy-and-hold investors focused on passive income should put ENB stock on their radar. Additional weakness would be an opportunity to add to the position.
