Enbridge (TSX:ENB) is up nearly 30% in the past 12 months. 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) portfolio focused on dividends and total returns.
Enbridge share price
Enbridge trades near $61 per share at the time of writing. The stock was as high as $65 earlier this year after an extended rally from $44 that began in late 2023.
Enbridge now trades slightly above the level it was at three years ago when interest rate hikes in Canada and the United States triggered a pullback in the stock that ran through most of 2023. Pipeline and utility stocks as a whole came under pressure while the central banks aggressively hiked borrowing costs in an effort to get inflation under control.
Enbridge uses debt to fund part of its growth program that includes acquisitions and development projects. The steep rise in variable-rate debt expenses, along with the jump in costs of accessing new funds in the bond market, caused some concern among investors that Enbridge would be forced to cut its generous dividend to preserve cash.
The start of the stock’s rebound in October 2023 occurred when market sentiment shifted from fears of more rate hikes to expectations for rate cuts as the central banks indicated they were done raising rates to cool down the economy.
In an effort to avoid causing a recession, the Bank of Canada and the U.S. Federal Reserve began cutting interest rates in the second half of 2024. This provided an extra tailwind for Enbridge’s share price.
Growth
Enbridge continued to stay focused on its growth program throughout the turbulence. The company spent US$14 billion in 2024 to buy three natural gas utilities. These businesses generate reliable rate-regulated revenue, helping further diversify Enbridge’s overall asset base, which has historically focused on oil and natural gas transmission. Enbridge bought an oil export terminal in Texas and bulked up its renewable energy division in the past few years.
On the development side, Enbridge is working through a $28 billion capital program that will drive adjusted earnings per share (EPS) and distributable cash flow (DCF) higher by 3% to 5% per year over the medium term. This should support ongoing dividend increases in a similar range. Enbridge raised the dividend in each of the past 30 years. Investors who buy the stock at the current level can get a dividend yield above 6%.
Risks
The stock trades pretty close to where it started the year. Investors are waiting to see if the central banks will continue to lower interest rates, or if tariffs will trigger a surge in inflation that forces the Bank of Canada and the U.S. Federal Reserve to hold rates steady for longer than previously expected. Rates could even go higher if inflation spikes. In that scenario, Enbridge and its peers would face new headwinds.
Time to buy?
Income investors should be comfortable buying the recent dip. Additional downside is possible, but it would be viewed as an opportunity to increase the position. The dividend should continue to grow, so you get paid well to ride out the volatility.
