Enbridge (TSX:ENB) is up about 30% in the past year. 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.
Enbridge overview
Enbridge ranks among the giants on the TSX with a current market capitalization of nearly $140 billion. The company is known for its oil pipeline networks that move almost a third of the oil produced in Canada and the United States. In recent years, however, Enbridge has diversified its asset portfolio to take advantage of emerging opportunities.
The company spent US$14 billion in 2024 to buy three large natural gas utilities in the United States. These assets complement the natural gas transmission and storage network Enbridge has in the U.S. and Canada. Natural gas demand is expected to rise in the coming years as new gas-fired power generation facilities are built to supply electricity for artificial intelligence data centres. Enbridge is also a partner in the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia to ship LNG to buyers in Asia.
On the oil side, Enbridge purchased an oil export terminal in Texas. Demand for North American oil is on the rise as countries seek out reliable sources from stable producers. In Canada, there could be an opportunity for Enbridge to participate in new oil pipeline projects as the country looks to build new access to global markets to reduce reliance on the United States.
Enbridge is also a major player in the renewable energy sector, with solar and wind assets in North America and Europe. Clean energy will continue to be part of the overall solution to boost electricity supply across the globe in the coming years.
Enbridge stock
Enbridge trades near $64 per share at the time of writing. It had fallen from $59 in 2022 to as low as $44 in late 2023, during the period when the Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates to get inflation under control. High interest rates are negative for companies like Enbridge that rely on debt to fund part of their large growth programs. Projects often cost billions of dollars and can take years to complete. Elevated debt expenses reduce profits and can cut into cash available for distributions.
As soon as the central banks indicated they were done raising rates, bargain hunters started to buy back into Enbridge. The stock picked up a second tailwind when rate cuts occurred in the second half of last year.
Additional rate cuts are currently on hold in Canada and the United States as the central banks wait to see how tariffs will impact inflation and the economy. That being said, analysts broadly expect rates to continue to decline in the second half of the year on the assumption that recession risks will require stimulus efforts.
Growth
Enbridge has a $28 billion capital program on the go that will drive growth in earnings and distributable cash flow in the next few years. This should support ongoing dividend increases. Enbridge raised the distribution in each of the past 30 years. Investors who buy ENB stock at the current level can get a dividend yield of 5.9%.
The bottom line
Near-term volatility is expected, but Enbridge pays a good dividend that should continue to grow and still offers an attractive yield, even after the rally. If you have some cash to put to work, this stock deserves to be on your radar.
