Enbridge (TSX: ENB) is down from its 2026 high. Investors who missed the big rally over the past three years are wondering if ENB stock is now undervalued again and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividend income and long-term capital gains.
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Enbridge share price
Enbridge (TSX: ENB) trades near $66 per share, compared to $80 this summer. The stock is now essentially back to where it started the year and is closing in on the 12-month low around $63.
The pullback is largely due to concerns that interest rates are going to move higher over the course of the next year. In the United States, the U.S. Federal Reserve just increased rates in a bid to keep inflation under control. Canada is widely expected to raise rates, as well. Economists are trying to figure out how high rates will need to go this time, with soaring oil prices driving up fuel costs. This hits drivers immediately, but rising transport fees will eventually work their way into the broader economy, as businesses are forced to pass higher expenses on to consumers.
Raising interest rates is one way the central banks can battle the impact of inflation. Higher borrowing costs tend to slow down economic activity, which should ease upward pressure on prices.
How does this impact Enbridge?
Enbridge borrows money to fund part of its growth program, including financing acquisitions and internal development projects. Capital investments often cost billions of dollars and some projects can take years to complete before they start to generate revenue. As debt expenses rise, there can be a negative impact on profits and a reduction in the amount of cash that is available for dividend growth or debt reduction.
Investors can look back to 2022 and 2023, the last time the central banks raised rates to battle inflation, to get a sense of the potential impact rising interest rates can have on Enbridge’s share price. Enbridge slipped from $59 per share to $44 over a stretch of about 18 months. That’s a decline of more than 25% from top to bottom. The stock started to recover around the time the central banks announced they were done raising interest rates. Cuts in 2024 and 2025 helped provide a tailwind for the recovery.
Risks
The American economy remains strong, even as gasoline and diesel fuel prices have soared. This could force the U.S. Federal Reserve to raise rates more than expected, especially if oil prices remain elevated well into 2027. Inflation isn’t as high as it was in 2022, but the central banks are not going to let it get out of control, which would require even more aggressive rate hikes.
As such, the downward pressure on pipeline infrastructure and utility stocks could persist until there is more clarity on how far rates will rise and when they might start to be cut again to avoid pushing the economy into recession. Markets tend to overshoot on both the downside and the upside, so investors need to keep this in mind when considering buying Enbridge today.
Opportunity
Enbridge continues to invest in growth. The company recently announced more than US$3 billion in acquisitions in the United States and is working through a $41 billion secured capital program. As the new assets are completed and go into service, the company expects distributable cash flow to rise by about 5% per year over the medium term. This should support ongoing dividend increases. Enbridge raised the dividend in each of the past 31 years.
Time to buy?
Income investors with a buy-and-hold strategy should be comfortable owning the stock at this level. The current 5.9% dividend yield pays you well to ride out some volatility and the dividend should continue to rise. Investors focused more on capital gains might want to start nibbling at this level and look to add on further weakness.
