A TFSA Pick Yielding 5% With Dependable Cash Payments

This company has increased the dividend annually for the past three decades.

Retirees and other income investors are searching for good TSX dividend stocks to add to their self-directed Tax-Free Savings Account (TFSA) portfolios.

Stock prices are near record levels across many sectors right now, but investors can still find names with high dividend yields and great track records of distribution growth.

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Enbridge

Enbridge (TSX: ENB) trades near $78 per share at the time of writing. The stock is up more than 20% in the past year, yet still provides an attractive dividend for investors seeking steady income.

Enbridge is best known for being an oil and natural gas pipeline company. Those assets are still very important as Enbridge moves nearly a third of all the oil produced in Canada and the United States and roughly 20% of the natural gas used by Americans.

In recent years, however, Enbridge shifted its growth investments to focus on other segments. The company acquired an oil export terminal in Texas and took a stake in the Woodfibre liquified natural gas (LNG) facility being built in British Columbia. Exports of Canadian and U.S. energy are expected to continue to grow in the coming years as global buyers seek reliable supplies from stable countries.

Enbridge also bulked up its renewable energy group with the purchase of America’s third-largest wind and solar developer. Finally, Enbridge spent US$14 billion to buy three natural gas utilities in the United States. The deal made Enbridge the largest natural gas utility operator in North America.

Growth

Enbridge is working on a $40 billion capital program with investments spread out across the various business lines. As the new assets are completed and go into service, the company expects adjusted earnings and distributable cash flow to rise by 5% annually over the medium term. This should enable ongoing dividend increases. Enbridge raised the dividend in each of the past 31 years.

Canada’s plan to diversify energy sales could lead to new oil and natural gas pipelines being approved in the next few years. Enbridge’s expertise in building and operating energy infrastructure makes it a good candidate to partner on any new major projects that would add capacity to move oil or natural gas to export facilities.

Domestic natural gas demand in Canada and the United States is set to rise, as well, with new gas-fired power generation facilities being built to supply electricity to new AI data centres.

Risk

Soaring interest rates in 2022 and 2023 triggered a sharp pullback in Enbridge’s share price from $59 to below $44. Enbridge uses debt to fund part of its growth program, so a jump in debt expenses can cut into profits and reduce cash that can be used to pay dividends.

Interest rates fell in 2024 and 2025, which is one reason the stock rallied over the past two years. Looking ahead, the next move in interest rates by the U.S. Federal Reserve and the Bank of Canada could be to the upside if rising oil prices drive inflation higher. In that situation, Enbridge would likely face new headwinds.

The bottom line

Near-term volatility should be expected, but income investors should be comfortable owning Enbridge for its reliable and generous distributions. Pullbacks in the share price would be an opportunity to add to the position.

The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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