Enbridge (TSX:ENB) is up more than 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 capital gains.
Enbridge share price
Enbridge trades near $62.50 per share at the time of writing, compared to less than $48 in June 2024. The stock was recently above $64.50, so investors have a chance to buy on a small dip.
The extended rally actually started in October 2023, when the stock was around $44, after a pullback from $59 in June 2022.
Interest rate hikes by the Bank of Canada and the U.S. Federal Reserve in 2022 and 2023 caused the decline in the share price. Investors shifted out of pipeline and utility stocks on fears that the rising borrowing costs would hit profits and reduce cash available for dividends, while also forcing companies to delay or shelve some growth projects. In the case of Enbridge, pundits even wondered if the dividend might be at risk of a cut.
Bargain hunters started to buy the stock in the fall of 2023 as soon as the central banks indicated they were done raising interest rates. Enbridge picked up an extra tailwind in the second half of last year once interest rates began to decline.
Growth
Enbridge continued to make growth investments throughout the turbulence. The company spent US$14 billion in 2024 to buy three natural gas utilities in the United States. The deals made Enbridge the largest natural gas utility player in North America at a time when natural gas demand is expected to increase considerably in the next few years as new gas-fired power generation facilities are built to supply electricity for hundreds of new AI data centres. Enbridge already has extensive natural gas transmission and storage infrastructure in Canada and the United States, so the company is in a good position to benefit from the trend.
On the oil side, Enbridge’s assets remain strategically important for the Canadian and U.S. economies. The company moves about 30% of the oil produced in the two countries. Enbridge also owns an oil export terminal in Texas.
In Canada, Enbridge could get an opportunity to be a partner on a new major oil pipeline project in the next few years as Canada looks to find ways to reduce its reliance on the U.S. for energy sales.
In the meantime, Enbridge is working on a $28 billion capital program that will drive earnings and distributable cash flow higher over the next few years. This should support ongoing dividend increases. Enbridge raised the dividend in each of the past 30 years. Investors who buy ENB stock at the current level can get a dividend yield of 6%.
Risks
A jump in inflation caused by U.S. tariffs could force the central banks to keep interest rates at current levels for an extended timeframe, or potentially even raise rates again if inflation spikes. In that scenario, Enbridge would face new headwinds.
The bottom line
For the moment, analysts widely expect interest rates to continue to decline through 2026. Lower rates and the strong capital program should be supportive of the stock. In the meantime, investors can pick up a great yield.
If you have some cash to put to work, Enbridge deserves to be on your radar for a portfolio focused on dividend growth.
