Canadian investors are searching for good TSX stocks to add to their self-directed Tax-Free Savings Account (TFSA) portfolios focused on dividend income and long-term total returns.
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Enbridge
Enbridge (TSX: ENB) is a giant in the North American energy infrastructure industry with extensive assets that include oil and natural gas transmission and storage networks, export facilities, natural gas utilities, and renewable energy installations.
The company moves roughly 30% of the oil produced in Canada and the United States, which means the infrastructure is strategically important for both the energy sector and the broader economy. Enbridge’s pipelines transport crude oil to refineries and export facilities, including its own terminal on the Gulf Coast in Texas. The pipelines also transport fuels from refineries to storage facilities where they are then sent to airports or gas stations.
On the natural gas side, Enbridge is now the largest operator of natural gas utilities in North America after its US$14 billion purchase of three natural gas utilities in 2024. These businesses, when combined with the existing gas utilities and the extensive natural gas transmission and storage infrastructure, position the company to benefit from the anticipated rise in natural gas demand in the coming years. New gas-fired power generation facilities are being built to supply electricity to AI data centres.
International demand for Canadian and American liquefied natural gas (LNG) is also on the rise, as countries around the globe scramble to secure reliable long-term supplies after being hit by disruptions caused by wars in Ukraine and the Middle East. Enbridge is a partner on the Woodfibre LNG export facility that is close to completion on the coast of British Columbia.
Asset expansion continues through a combination of purchases and organic developments. The company announced more than US$3 billion in acquisitions in the United States in the past few weeks. In addition, Enbridge is making progress on its $41 billion capital program.
Earnings and cash flow growth from the new assets should support ongoing dividend increases over the medium term. Enbridge raised the dividend in each of the past 31 years.
The stock trades near $66 per share at the time of writing, compared to the 12-month high around $80. Investors who buy ENB at the current level can pick up a dividend yield of 5.9%.
Risks
The governor of Michigan wants to shut down Enbridge’s Line 5 pipeline that runs through the state on its way to Ontario. Part of the pipeline sits along the bottom of the Straits of Mackinac, a waterway that connects Lake Michigan to Lake Huron. The governor says the decades-old pipeline is an environmental risk.
Rising bond yields and higher interest rates are also a headwind for Enbridge. The company uses debt to fund part of its large growth program. A jump in debt expenses can cut into profits while reducing cash available for dividends or debt reduction.
The bottom line
Enbridge’s share price could see further downside if the American and Canadian central banks raise interest rates more aggressively than expected in the coming months to get inflation under control. As such, new investors focused on total returns might want to ease into the stock.
That being said, Enbridge already looks attractive at this level for buy-and-hold income investors. You get paid well to ride out additional weakness, and the capital program should enable ongoing dividend growth. Further declines in the shares would be an opportunity to average up the yield on the holdings.
