The steady rise in the cost of living is pushing people to seek out better returns on their savings.
Retirees and other income investors who want to create a stream of tax-free passive income to complement government and work pensions can add top TSX dividend stocks to their self-directed Tax-Free Savings Account (TFSA) portfolios to help offset the impact of inflation.
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Enbridge
Enbridge (TSX: ENB) has been a top pick among dividend investors for decades, and there is little reason for that to change. The energy infrastructure giant is positioned well to benefit from positive trends in the energy sector, both in the domestic markets and abroad.
Enbridge moves roughly 30% of the oil produced in Canada and the United States and close to 20% of the natural gas used by American homes and businesses. The extensive storage and transmission infrastructure is strategically important for the smooth operation of the economies of the two countries. Enbridge expanded its asset portfolio significantly in the past five years, with most of the investments occurring in the United States. The deals have proven to be timely moves.
Enbridge bought an oil export terminal in Texas in 2021 ahead of the disruption to global supplies caused by wars involving major oil producers. As demand for North American oil continues to rise, Enbridge is making acquisitions in the U.S. to provide a direct connection for U.S. producers to the export site.
On the natural gas side, Enbridge bought three American natural gas utilities in 2024. The assets complement the existing gas transmission infrastructure in the United States and position Enbridge to take advantage of the anticipated surge in natural gas consumption, as new gas-fired power generation facilities are built to supply electricity to AI data centres.
New assets coming online
At home, Enbridge is a partner of the Woodfibre LNG export facility nearing completion on the coast of British Columbia and is investing in expansions of its natural gas network in the country. Canada’s plan to become an energy superpower opens up new potential growth opportunities for both natural gas and oil infrastructure.
Enbridge’s current secured capital plan is more than $40 billion. As the new assets are completed and go into service, the boost to distributable cash flow is expected to be 5% per year over the medium term. This, along with contributions from acquisitions, should enable the board to maintain dividend growth. Enbridge has increased the dividend in each of the past 31 years.
Investors who buy ENB at the current price can get a dividend yield of 5.8%. The stock trades near $67 at the time of writing, compared to more than $80 earlier this year.
Risks
Enbridge uses debt to fund part of its growth program. Rising borrowing costs can put a dent in profits and will potentially reduce cash that is available to pay down the debt load or boost dividends. Expectations for rate hikes have already pushed up yields in the bond market. This is largely why the stock has given back some of the big gains it racked up over the past two years.
Looking ahead, elevated oil prices are expected to drive up inflation as the higher cost of transporting goods gets passed on to consumers. This will likely force the U.S. Federal Reserve and the Bank of Canada to raise interest rates in the coming months. The American central bank already made its first upward move at its last meeting. Economists have different opinions on the speed and size of the rate increases that will be needed, but most are of the opinion that rates will go higher.
If the central banks are forced to be more aggressive than currently expected by the market, Enbridge’s share price could face additional headwinds.
The bottom line
Near-term volatility is expected, but Enbridge has already pulled back quite a bit and pays a good dividend that should continue to grow. If you have some cash to put to work in a buy-and-hold income portfolio, this stock deserves to be on your radar.
