Canadian investors are searching for good TSX stocks to add to their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividend income and long-term total returns.
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Market outlook
The strong rally in the stock market over the past couple of years has driven up valuations across many sectors. While prices continue to hold up against negative news, rising inflation in recent months, and an elusive trade deal between Canada and the United States could lead to near-term volatility.
On the positive side, the economy continues to be in decent shape, despite the challenges. If this remains the case while inflation stays elevated, the central banks could be forced to raise interest rates later this year. That would potentially put pressure on stock prices if investors start to price in a series of additional hikes.
A quick trade deal between Canada, the United States, and Mexico would likely extend the market rally. Drawn-out negotiations, with ongoing threats of new tariffs, will, however, keep businesses from making new investments and could put pressure on the economy.
With these factors in mind, it makes sense for dividend investors to consider companies that generate income in both Canada and the United States and have solid track records of delivering dividend growth through challenging market conditions.
Enbridge
Enbridge (TSX: ENB) is a long-term favourite among Canadian income investors. The energy infrastructure giant has increased the dividend in each of the past 31 years.
Enbridge spent the past few years adding assets south of the border as it positioned itself to benefit from emerging energy trends.
The company spent US$3 billion in 2021 to buy the largest oil export terminal in Texas. International demand for American and Canadian oil is rising as countries around the globe seek to secure reliable supplies in the wake of the recent disruptions to oil tanker traffic through the Strait of Hormuz.
In 2024, Enbridge acquired three American natural gas utilities ahead of the boom in demand for natural gas as new gas-fired power generation facilities are being built to supply electricity to AI data centres. The assets complement Enbridge’s extensive natural gas transmission and storage infrastructure in the United States, while making Enbridge the largest natural gas utility operator in North America.
Enbridge is currently working on a $40 billion secured capital program. As these assets are completed and go into service, the company expects distributable cash flow to increase by about 5% annually over the medium term. This should enable the board to continue to increase the dividend.
Investors who buy ENB stock at the current share price can pick up a dividend yield of 5%.
Risks
A jump in interest rates in Canada and the United States would be a headwind for Enbridge’s share price, as investors saw in 2022 and 2023 when the stock pulled back as interest rates soared. Enbridge uses debt to fund part of its growth program, so rising borrowing expenses can cut into profits and reduce cash that is available for dividend payments. The impact would be determined by the size and speed of the rate increases.
The bottom line
Near-term market turbulence is expected, but Enbridge pays an attractive dividend that should continue to grow. If you have some cash to put to work, this stock deserves to be on your radar.
