Canadian pensioners are using their self-directed Tax-Free Savings Account (TFSA) to generate income that can complement other retirement earnings.
In an environment where inflation is driving up the cost of living, retirees want to get the highest yields possible on their savings without taking on too much capital risk. One popular strategy involves owning top TSX dividend stocks with histories of delivering steady dividend growth.
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Enbridge
Enbridge (TSX:ENB) trades near $79 at the time of writing, just shy of its 2026 high. The stock price rose about 28% over the past 12 months and has been on an upward trend since late 2023.
Investors who missed the rally after the 2022 and 2023 pullback can still get a solid 4.9% dividend yield from Enbridge at the current share price. Enbridge raised the dividend in each of the past 31 years. Shareholders will likely see steady dividend growth continue over the medium term.
Enbridge is investing $40 billion on a variety of capital projects spread out across the core business segments.
The natural gas transmission division is working on storage and pipeline expansions to meet rising domestic and international demand for natural gas. Enbridge is also a partner on the Woodfibre liquified natural gas (LNG) export facility nearing completion on the coast of British Columbia.
South of the border, Enbridge continues to build solar and wind installations to provide clean energy to customers in the tech industry who need the power for their data centres.
Enbridge is also making progress on its plan to boost the transportation capacity of its Mainline oil pipeline network that carries Canadian oil to refineries in the United States. The company is targeting capacity expansion of 400,000 barrels per day by the end of 2028.
In addition to the secured capital program, Enbridge has made several strategic acquisitions in recent years to drive growth. The company bought an oil export terminal in Texas and added three natural gas utilities in the United States. The large presence in the U.S. provides investors with good access to growth opportunities in the American energy sector.
Opportunities
Demand for Canadian and American oil and natural gas is rising. In Canada, the government wants to build more pipelines to get Canadian energy products to the coast for delivery to international buyers. Global prices for oil and natural gas are higher than the prices received by selling the energy to buyers in the United States. At the same time, Canada needs to reduce its reliance on the Americans for energy sales. The shift in the government’s position toward the construction of new pipeline infrastructure should open up new project opportunities for Enbridge and its large Canadian peers.
Risks
Inflation remains a threat to the Canadian and U.S. economies as high fuel prices could filter through to a broad basket of products and services. Pundits are already predicting rate hikes in the United States and potentially in Canada in 2027 if inflation remains sticky. Rising borrowing costs are a headwind for Enbridge and other energy infrastructure companies, as they use debt to fund part of their large capital programs. The pullback in the share price in 2022 and 2023 occurred largely in step with rate hikes by the central banks.
The bottom line
Near-term headwinds could be on the way, but Enbridge’s secured capital program should continue to drive earnings and cash flow growth to support ongoing dividend increases. If you have some cash to put to work in a buy-and-hold dividend portfolio focused on generating passive income, this stock deserves to be on your radar.
