Enbridge (TSX: ENB) has been on a roll for more than two years. Investors who missed the rally are wondering if ENB stock is still attractive and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
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Enbridge share price
Enbridge trades near $79 per share at the time of writing. The stock is up about $30 over the past 24 months, blowing past the previous high it reached more than a decade ago.
Long-term investors have been rewarded for their patience as Enbridge’s strategy shift over the past few years is now delivering results.
Enbridge historically grew by building large new oil and natural gas pipelines in Canada and the United States. Public and government opposition to new major energy projects, however, forced Enbridge to pivot its investment program to focus on emerging opportunities in the energy space.
In 2021, Enbridge spent US$3 billion to buy the largest oil export terminal in the United States. This has proven to be a savvy move as international demand for Canadian and American oil is rising. Enbridge is also involved in boosting the export of natural gas. It is actively building infrastructure to move natural gas to new export terminals in the United States. In Canada, Enbridge is a partner on the new Woodfibre liquefied natural gas (LNG) export facility being built in British Columbia.
Domestic U.S. demand for natural gas is also poised to surge as new gas-fired power generation facilities are constructed to supply electricity to new AI data centres. Enbridge spent US$14 billion in 2024 to buy three natural gas utilities in the United States. These assets, along with the existing transmission network, position Enbridge to benefit from higher natural gas use, especially as the change in the political mood in the past year has become more favourable to oil and natural gas projects.
In Canada, the new plan to make Canada an energy superpower could lead to new large oil and natural gas pipelines being approved and built to enable Canadian energy producers to sell more product to global buyers through new export facilities. Enbridge would be a top candidate to participate in the construction and operation of any new major projects that get the green light from the government.
Enbridge already has $40 billion in secured capital projects in place to help drive revenue growth in the next few years. This should support ongoing dividend increases, as distributable cash flow is expected to increase at an annual clip of about 5% over the medium term. Enbridge raised the dividend in each of the past 31 years. At the time of writing, the stock provides a dividend yield near 5%.
Risks
Interest rate hikes in 2022 and 2023 caused grief for Enbridge and other utility and pipeline companies. Capital projects often cost billions of dollars and take years to complete, forcing energy infrastructure firms to use a lot of debt to fund the construction of the new assets. A jump in debt expenses puts pressure on profits and reduces cash that can be used to pay down debt or pay dividends. High borrowing costs can also force companies to delay or shelve growth projects.
Enbridge’s rebound in 2024 and 2025 was partly driven by rate cuts by the Bank of Canada and the U.S. Federal Reserve. Inflation is on the rise again, which could force the central banks to raise rates later this year or in 2027. If rate hikes come quickly in succession or are larger than expected, Enbridge’s share price could face new headwinds.
The bottom line
Near-term volatility should be expected. In fact, there will likely be a better entry point before the end of the year. That being said, the dividend pays you well to ride out turbulence, and pullbacks would be a chance to add to the position if you decide to buy now.
Existing shareholders should probably hold on at this point. New buyers might want to start nibbling on any dips and look to increase their holdings if the stock gives back some of the recent gains. Over the long haul, ENB should continue to deliver decent returns.
