Retirees and other dividend investors are searching for reliable TSX stocks to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on income and long-term total returns.
Many stocks now trade near record highs, so investors need to be careful when putting new money to work. In this environment, it makes sense to look for industry leaders with long track records of delivering dividend growth through the full economic cycle.
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Enbridge
Enbridge (TSX:ENB) is a major player in the North American energy infrastructure sector.
The company’s oil pipeline network moves about a third of the oil produced in Canada and the United States, and its export terminal in Texas connects producers to global buyers.
Enbridge’s natural gas transmission network carries roughly 20% of the natural gas used by Americans, while its US$14 billion acquisition of three natural gas utilities in the U.S. in 2024 made Enbridge the largest operator of natural gas utilities on the continent.
Renewable energy is another part of the mix. Enbridge owns the third-largest wind and solar developer in the United States and has assets and projects in Europe.
Acquisitions are a big part of the growth strategy, but Enbridge is also working through a $40 billion secured capital program across its four divisions. As the new assets are completed and go into service the added revenue and earnings are expected to deliver 5% annual growth in distributable cash flow in the next few years. This should support ongoing dividend increases. Enbridge raised the dividend in each of the past 32 years.
The stock has enjoyed a nice recovery since late 2023, but investors can still pick up a decent 5.1% dividend yield from ENB.
Risks
Enbridge pulled back from $59 in the summer of 2022 to below $44 in late 2023. That decline was caused by interest rate hikes at the Bank of Canada and the U.S. Federal Reserves as the central banks battled to get inflation under control. Rising interest rates are negative for big energy infrastructure businesses like Enbridge that use debt to fund a large chunk of their growth projects, which often cost billions of dollars and can take years to complete.
A jump in interest expenses puts a dent in profits and can cut into cash that is available to reduce debt or distribute to shareholders as dividends.
The rebound in the share price through 2024 and 2025 occurred as the central banks reversed course and reduced rates. Looking ahead, the next moves could be to the upside again if inflation surges due to the sharp increase in oil prices.
If rates go higher, Enbridge would face new headwinds and the stock could come under pressure.
The bottom line
Near-term volatility should be expected, but dividend investors should feel comfortable owning ENB stock for the long haul. Cash flow expansion driven by the capital program should enable ongoing dividend growth, even if rates increase. Pullbacks in the share price would be an opportunity to add to the position.
