Enbridge (TSX:ENB) is up more than 50% in the past 24 months. Investors who missed the rally are wondering if ENB stock is still good to buy for a 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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Enbridge share price
ENB trades near $77 per share at the time of writing compared to as low as $44 in the fall of 2023. It is up about 18% in 2026 and gained 25% over the past year.
The recovery after the 2022 and 2023 pullback can be attributed to the end of interest rate hikes in the United States and Canada, and the subsequent rate cuts that followed in 2024 and 2025.
Why is this important?
Enbridge uses debt to fund part of its growth program, which often includes projects that cost billions of dollars and can take years to complete. High inflation after the pandemic forced the U.S. Federal Reserve and the Bank of Canada to aggressively increase interest rates in an effort to cool off an over-heated economy. Energy infrastructure and utility companies came under pressure during this time as investors worried that the surge in borrowing costs would cut into profits and reduce cash that could be paid out as dividends.
As soon as the central banks signalled they were done raising rates, market sentiment shifted from fears of higher borrowing costs to anticipation of the rate cuts that materialized over the past couple of years.
Looking ahead, however, there could be some new headwinds on the rate front. Rising inflation caused by higher oil prices could force the U.S. Federal Reserve and the Bank of Canada to increase rates later this year or in 2027. This will depend on whether inflation continues to increase and if the economy remains resilient enough to support the rate hikes.
Modest rate increases that are spread out shouldn’t have too large of an impact on Enbridge and its peers. Aggressive rate hikes over a tight timeframe would likely put new pressure on energy infrastructure stocks.
Upside?
Enbridge has a $40 billion secured capital program on the go that will steadily raise revenue and distributable cash flow (DCF) over the next few years. Management is targeting annual DCF growth of 5%, so this should support ongoing dividend increases. Enbridge raised the distribution in each of the past 31 years and currently provides a 5% dividend yield.
Enbridge has also been active with acquisitions to diversify the asset portfolio and drive additional earnings expansion. The company spent US$3 billion to buy an oil export terminal in 2021 and paid US$14 billion in 2024 to purchases three natural gas utilities in the United States.
Demand for Canadian and American oil and natural gas is rising as countries around the globe search for reliable supplies from stable producers after the disruptions caused by the wars in Ukraine and Iran. Domestic natural gas demand is also surging as new gas-fired power generation facilities are being built to provide electricity to AI data centres. These trends bode well for Enbridge.
The bottom line
Rate hikes will be a headwind, but the large growth program and positive momentum in the energy sector should mitigate the risks on the interest rate side of the equation. Investors probably won’t see the same upside in the share price over next two years that occurred in the past 24 months, but ENB still looks attractive right now for a buy-and-hold dividend portfolio.
