Enbridge (TSX:ENB), one of the giants in the energy infrastructure sector, has recently experienced a dip in its stock price, reaching its lowest point in two years. This has prompted investors who missed out on the rally after the 2020 crash to consider whether ENB stock is now undervalued and a good buy for a self-directed Tax-Free Savings Account (TFSA) focused on high-yield passive income.
Enbridge is a significant player in the energy infrastructure sector, responsible for moving 30% of the oil produced in Canada and the United States. They recently acquired an oil export terminal in Texas for US$3 billion to take advantage of rising international demand. In addition, Enbridge’s natural gas transmission network carries 20% of the natural gas used in the United States. The company has also made a deal to purchase three American natural gas utilities for a total of US$14 billion, expanding their gas utilities business and making them the largest operator of natural gas utilities in North America.
Enbridge is actively investing in liquified natural gas (LNG) export opportunities, as well as renewable energy development. They have a stake in the Woodfibre natural gas plant in British Columbia and acquired an American renewable energy developer with assets in North America and Europe. These investments position Enbridge well to capitalize on the anticipated shift to hydrogen and expand their solar and wind portfolios.
The drop in Enbridge’s stock price can be attributed to soaring interest rates in Canada and the United States. However, since Enbridge is not an oil and gas producer, changes in oil and natural gas prices have a limited direct impact on their revenue and cash flow. As long as demand remains strong and volumes are high through their pipelines, Enbridge generates steady cash flow. The downside risk from the interest rate hike is expected to be limited as rate hikes are likely nearing their peak.
Enbridge has a track record of increasing its dividend for the past 28 years. With the addition of the three U.S. utilities and a current $17 billion capital program, the company expects to drive cash flow growth to support ongoing dividend increases. At the time of writing, the dividend provides a 7.5% yield.
Given the current level at which Enbridge’s stock is trading, it appears to be oversold. Once interest rates start to decline, it is expected that top TSX dividend stocks like Enbridge will see a bounce. Therefore, if you have some cash to allocate towards a TFSA that targets passive income, it may be worth considering adding Enbridge to your radar.
- Enbridge overview: ENB Investor Presentation
- Enbridge stock: Market data from Yahoo Finance
- Enbridge dividend: Enbridge Investor Relations