Canadian retirees are searching for good TSX dividend stocks to add to their self-directed Tax-Free Savings Account (TFSA) focused on generating growing passive income and long-term total returns.
Enbridge (TSX:ENB) is a popular pick, but the stock has enjoyed a big rally in the past two years, and investors are wondering if it is still an attractive option.
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Enbridge share price
ENB trades near $68 per share at the time of writing. The stock was below $44 in the fall of 2023 and recently hit $70 before pulling back a bit in the past few weeks.
The rally began when the Bank of Canada and the U.S. Federal Reserve signalled in the fall of 2023 that they were done raising interest rates in their battle to get inflation under control. Enbridge and other pipeline and utility stocks had taken a beating in 2022 and 2023 as the central banks aggressively raised rates. Energy infrastructure companies use debt to fund their large capital programs. Projects often cost billions of dollars and can take years to complete. Higher borrowing costs put pressure on profits and can reduce the cash available for distributions.
At one point, some pundits started to worry that Enbridge might have to trim its generous dividend. In the end, the fear was not warranted. Rate cuts in 2024 and 2025 eased pressure on borrowing costs and put a new tailwind behind the stock. Enbridge’s growth initiatives are also attracting investors back to the shares.
Diversification
Enbridge spent US$14 billion in 2024 to buy three American natural gas utilities. The deal turned Enbridge into the largest natural gas utility operator in North America at a time when demand for natural gas is expected to rise in the coming years as gas-fired power generation facilities are built to produce electricity for AI data centres. Enbridge’s extensive natural gas transmission pipelines, when combined with the distribution utilities, put the company in a good position to capitalize on the demand growth.
Enbridge made other investments in recent years to diversify its revenue stream. The company purchased an oil export terminal in Texas and bulked up its renewable energy division with the purchase of America’s third-largest solar and wind developer. In addition, Enbridge is a partner on the Woodfibre liquified natural gas (LNG) export facility being built on the coast of British Columbia.
Looking ahead, Enbridge has a $35 billion capital program on the go to boost revenue and distributable cash flow. The company is expanding its oil and natural gas transmission networks to accommodate rising demand as Canadian oil and gas producers increase production. It is also building solar facilities to provide power for AI data centre clients.
As new assets are completed and go into service, the increase in cash flow should support ongoing dividend hikes. Enbridge raised the dividend in each of the past 30 years. Investors who buy ENB stock at the current price can get a dividend yield of 5.5%.
Risks
The broader equity market is due for a pullback. When that occurs, Enbridge won’t be immune to the momentum shift, particularly given its stellar run over the past couple of years.
Further rate cuts by the Bank of Canada and the U.S. Federal Reserve are not guaranteed. In fact, a surge in inflation caused by tariffs could potentially force the central banks to start raising rates again in 2026 or 2027. In that scenario, Enbridge’s share price would face new headwinds.
The bottom line
Enbridge pays a good dividend that should continue to grow as the company completes capital projects and makes strategic acquisitions. Near-term volatility is expected, but any material pullback would be viewed as an opportunity to add to the position.
If you have some cash to put to work in a portfolio targeting passive income, this stock deserves to be on your radar.
