Canadian pensioners are searching for good dividend-growth stocks to add to their self-directed Tax-Free Savings Account (TFSA) portfolios focused on generating yields that can outpace the rate of inflation.
The recent pullback in the share prices of some top TSX dividend stocks is giving investors a chance to pick up attractive returns at a discount.
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Enbridge
Enbridge (TSX: ENB) is known primarily for its oil pipelines and natural gas transmission infrastructure in Canada and the United States. These assets remain core drivers of revenue and profits for the company and are strategically important for the smooth operation of the broader energy sector. Enbridge moves about 20% of the natural gas used in the United States and roughly 30% of the oil produced in the two countries.
Enbridge expanded its operations in recent years to take advantage of other growth opportunities. The company spent US$3 billion to buy an oil export terminal in Texas and is a partner on the Woodfibre liquefied natural gas (LNG) export facility nearing completion on the coast of British Columbia. In 2024, Enbridge spent US$14 billion to buy three American natural gas utilities.
International demand for North American energy is on the rise, driven by wars in Ukraine and Iran that have disrupted supplies of oil and liquefied natural gas. Countries around the globe want to secure reliable supplies from stable producers. This should lead to strong volumes passing through Enbridge’s pipelines and export terminals.
In the domestic market, natural gas demand is expected to surge as new gas-fired power generation facilities are built to supply electricity to AI data centres. Enbridge’s natural gas transmission and distribution businesses should benefit.
Enbridge is working on a $41 billion capital program that is expected to boost adjusted earnings and distributable cash flow by about 5% per year over the medium term. This should enable the board to deliver steady dividend growth. Enbridge raised the dividend in each of the past 31 years.
Investors who buy ENB at the current share price can pick up a dividend yield that is close to 6%.
Risks
Enbridge trades near $65 per share at the time of writing, compared to $80 in the summer. The pullback is largely due to rising borrowing costs in the global bond markets. Yields on government treasuries in the United States and Canada have risen meaningfully in the past few months as markets anticipate rate hikes by the central banks as they move to keep inflation under control. The U.S. Federal Reserve already raised rates last month with more hikes expected late this year or in 2027.
Enbridge uses debt to fund part of its growth program. Projects can cost billions of dollars and often take years to complete before they start to generate revenue. A steep jump in borrowing expenses can put a dent in profits and eat up cash that can be used to pay down debt or raise dividends. In 2022 and 2023, the last time the central banks increased rates, Enbridge saw its share price drop by about 25%.
The bottom line
Near-term weakness could persist until the market has a better idea of how high interest rates will go in the coming months. That being said, income investors might want to start nibbling on ENB at the current price to secure the 6% yield and look to add to the position if the share price moves lower. Over the long haul, the returns should be solid.
