Rising share prices are putting pressure on dividend yields to the point where many stocks now have yields that are comparable to rates offered on Guaranteed Income Certificates (GICs).
Retirees seeking higher returns on investments held inside a self-directed Tax-Free Saving Account (TFSA), however, are wondering where they can still get good dividend yields that are better than GIC rates without taking on too much risk.
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Enbridge
Enbridge (TSX: ENB) is a giant in the North American energy infrastructure industry with a current market capitalization near $170 billion.
The company continues to expand its asset base through a combination of strategic acquisitions and capital projects as it looks to take advantage of the value of its legacy pipeline networks while also positioning itself to benefit from emerging trends in both domestic and international energy markets.
Enbridge bought an oil export terminal in Texas in 2021. The company also purchased three American natural gas utilities for US$14 billion in 2024. These moves have proven to be savvy investments amid shifts in energy demand at home and abroad.
Global LNG surge
Wars in Ukraine and Iran have driven a surge in global interest in Canadian and American oil and liquified natural gas (LNG). Enbridge’s ownership of the largest oil export terminal in Texas extends its ability to generate revenue that historically only came from pipeline tolls and storage fees. On the natural gas side, the new utilities complement Enbridge’s extensive natural gas transmission network. Enbridge is also active in connecting natural gas suppliers to new LNG export facilities in the United States and will play a role in Canada, as well, with its stake in the Woodfibre LNG export facility being built in British Columbia.
Rising power demand
Power demand in Canada and the United States is set to rise as new electricity-hungry AI data centres are built. Enbridge’s renewable energy division is building wind and solar facilities to supply power to tech companies that want to use as much clean energy as possible to power their data centres.
New natural gas supply
Enbridge should also see demand for natural gas rise as new gas-fired power generation facilities are constructed to supply power for other AI data centre projects. Renewable energy sources are either not adequate or not feasible to supply the required electricity in some cases.
On the development side, Enbridge has a $40 billion secured capital program on the go with investments spread out across the different business groups. As the new assets are completed and go into service, the boost to revenue and earnings is expected to provide 5% annual growth in distributable cash flow (DCF) over the medium term. This should enable the board to maintain steady dividend growth. Enbridge has increased the distribution in each of the past 31 years.
Risks
Sticky inflation could force the U.S. Federal Reserve and the Bank of Canada to raise interest rates later this year or in 2027. If that happens, Enbridge and other energy infrastructure and utility stocks could face headwinds as investors scale back growth and profit expectations due to the higher cost of borrowing.
The bottom line
Enbridge pays a good dividend that should continue to grow. The stock isn’t as cheap as it was two years ago, but still deserves to be on your radar for a portfolio focused on generating high-yield passive income.
