Enbridge (TSX: ENB) is down more than 10% from the 2026 high. Investors that missed the big rally over the past two years are wondering if the stock is getting oversold and is now good to buy for a self-directed Tax-Free Savings Account or Registered Retirement Savings Plan (RRSP) portfolio. Existing shareholders, meanwhile, are trying to decide if they should hold on to the stock, or exit in case there is more downside.
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Enbridge stock price
Enbridge trades near $71 per share at the time of writing compared to more than $80 last month. The stock is still up about 8% this year.
The weakness in the past few weeks is likely due to a combination of factors. On the operational side, Enbridge recently announced it will delay the planned $1.4 billion second expansion phase of its Mainline oil pipeline that moves oil from Canada to the United States. Enbridge said it doesn’t have the required volume commitments from producers to go ahead at this time. Canadian energy firms are waiting to get more clarity on the government’s new policy and regulatory changes before allocating the capital needed to significantly boost production.
Headwinds
In addition, the Michigan Supreme Court just rejected a permit that Enbridge received in 2023 to build a tunnel under the Straits of Mackinac for its existing pipeline, which currently runs along the bottom of the waterway connecting Lake Michigan and Lake Huron. The Line 5 pipeline carries fuel from Superior Wisconsin through Michigan to refineries in Sarnia, Ontario. In separate legal proceedings, the governor of Michigan has spent the past few years trying to get the pipeline closed.
Another headwind to the stock could be the rise in government bond yields. Markets are anticipating new rate hikes in the United States and Canada as inflation remains well above the 2% target in both countries. Rate increases would drive up borrowing costs for Enbridge and its pipeline peers. A jump in debt expenses reduces profits and can cut into cash that is available to pay dividends or reduce debt.
Enbridge’s share price fell from $59 in June 2022 to as low as $44 in late 2023 when the central banks aggressively raised interest rates to get inflation under control. If a 25% drop from the latest peak is once again on the way, investors could potentially see Enbridge retest $60 at some point in the next year.
Opportunity
The central banks will probably be less aggressive with rate hikes this time around, if the hikes even materialize. Inflation would have to take off and the economy would need to remain strong for this to happen. Some upward movement in rates is expected, but the moves will probably be smaller and more spread out than they were the last time.
Enbridge’s capital program should provide support for the stock. The company has $41 billion in secured capital projects on the go that will drive steady growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the next few years. Distributable cash flow (DCF) growth is targeted at 5% over the medium term. That should enable the board to continue raising the dividend. Enbridge increased the distribution in each of the past 31 years.
The bottom line
Income investors who already own the stock should probably hold on and maybe look to add to the position on further weakness. New investors might want to take a half position at this level and wait to see if a better entry point emerges in the coming months. At the current share price the dividend yield is about 5.5%, so you get paid well to ride out some extra turbulence.
