If you’re looking to restrategize with your RRSP to help get it back into growth mode, perhaps checking out some of the beaten-down value names on the TSX Index could be the move, especially as the great multi-year bull market looks to take a bite of a late-summer breather after a sudden August spike. Indeed, buying after sudden surges in the broad market can be a bit off-putting, especially since steep spikes tend to accompany equally sharp dips.
Either way, I do think that the best thing an investor can do after such recent action is to stay the course and focus on the individual names that still offer a decent relative value compared to the broader index. While investors are probably going to do well by just owning the averages over the long term, I do think that as valuations creep higher and the slate of risks increases, it makes more sense to pick (value) stocks than to just own a slice of everything, including some of the overheated, overpriced names that might not be spared come the next market-wide correction.
In this piece, we’ll look at one TSX stock that might be a great fit for a risk-averse RRSP (or even a TFSA) that’s focused on building wealth without getting caught in the at-risk names now that growth is getting a second wind after recent turbulence moving through tech.
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Enbridge
Enbridge (TSX:ENB) has been such a magnificent performer since bottoming out back in the second half of 2023. Since those depths, shares of the pipeline have gained a remarkable 64%. And the best part is investors who got in at those lows also locked in a pretty massive dividend yield in the ballpark of 8%. The yield shrunk to around 5%, but, more recently, the name hit the brakes with its rally, dipping nearly 11% from its May lows. I think this is the buying opportunity that investors have been waiting for.
Of course, today, there’s a nastier technical picture (corrections are never fun to buy when they actually do happen), still-questionable multiple (27.6 times trailing price-to-earnings isn’t cheap, but it’s also not wildly outlandish), and skepticism among some on Bay Street.
But for those who want a Canadian midstream leader with a 5.4% yield and some pretty compelling tailwinds (energy transportation infrastructure faces many), I’d argue that holding your nose and buying the dip may not be the worst idea in the world, especially since the rest of the market is overdue for a drop anyway.
In short, Enbridge is a great company that’s seeing its multiple come back to Earth, and while the 8% yield days are long gone, I wouldn’t sleep on the name as the yield looks to surpass 5.5%.
The bottom line
Whether you’re worried about the Mainline expansion pause, a further valuation reset, more muted expectations moving forward, or something else, Enbridge remains that shareholder-friendly company that’s going to find a way to return capital right back to shareholders, even when hurdles inevitably present themselves on the road higher. The company has been through worse before and has treated investors to some generous dividend hikes regardless.
Even for holders of the stock, I think that most long-term investors should be genuinely delighted to see shares slip. The option to buy more shares at a higher yield and a lower price ought to be a good thing for those who still believe in the long-term game plan. In an RRSP, I’d look to reinvest those dividends on the way down.
