A High-Yielding Dividend Stock for Your TFSA, but Is it Safe?

Enbridge Inc. (TSX:ENB)(NYSE:ENB) stock, with its 6.5% dividend yield, is a good candidate for your TFSA, but is it safe to invest in this company?

| More on:
think, plan, and act to work towards your financial goals

I usually don’t recommend taking extra risk in your investing approach if you’re using your Tax-Free Savings Account (TFSA) to build your retirement portfolio.

I think avoiding the high-risk area of the market is a good strategy for long-term investors. There is no guarantee that today’s high-yielding stocks will continue to maintain their payouts in the long run. Do you remember the 2014 crash in commodity prices? It took with it many solid dividend names that were either forced to slash their dividends, or, in some cases, abandon their cash-return programs altogether.

After these words of caution, I also want to highlight this fact that the markets sometimes present opportunities where stocks get punished for all the wrong reasons, and they become undervalued.

That’s usually the time when you can lock in some hefty yields and take advantage of the market’s noise. Here is a high-yielding stock for you to consider and, if possible, include in your TFSA portfolio.

Enbridge Inc. (TSX:ENB)(NYSE:ENB)

Enbridge is North America’s largest pipeline operator. It has been under selling pressure for many months. The slide in its share price further accelerated after the bond yields began to rise in the U.S. and Canada on expectations of higher inflation. Power and gas utilities underperform in this environment, as investors move their cash to risk-free government bonds.

There is no doubt that Enbridge has its own issues too. Its balance-sheet is highly leveraged, and its debt is swelling, especially after its Spectra Energy acquisition of the last year.

But despite these threats, I think Enbridge’s strength in the sector remains intact. It operates the world’s longest crude oil and liquids transportation system. The company is a leader in gathering, transportation, processing, and storage of natural gas in North America, serving about 3.5 million retail customers in Ontario, Quebec, New Brunswick, and New York State.

Enbridge shipped record oil volumes in December, as rising western Canadian production filled the extra capacity the company has been adding to its system.

The increased volumes helped push Enbridge to an adjusted net income of $1.01 billion, or $0.61 per common share, beating analyst expectations of $0.56 per share of adjusted earnings in the fourth quarter.

Attractive yield

As the stock lost more than quarter of its value during the past 12 months, its annual dividend yield swelled to over 6.5%. At the current level, Enbridge’s yield is more than double the company’s five-year average yield.

If you are seeking a stable dividend stock that regularly hikes its payout, then Enbridge should be in your TFSA. The pipeline operator has a history of more than six decades of delivering regular payouts. Over the past 20 years, the dividend has grown at an average compound annual growth rate of 11.7%. For the next three years, the company plans to grow its $2.68-a-share yearly dividend by 10% each year.

Trading at $40.99 and with a forward P/E multiple of 16, Enbridge’s valuation has become attractive after a 26% drop in its share price in the past 12 months. I think Enbridge’s dividend is safe, and its stock is a good bargain for TFSA investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Hand Protecting Senior Couple
Retirement

These 2 Dividend ETFs Are a Retiree’s Best Friend

These two dividend ETFs could provide retirees with a diversified and stable income stream, while providing some price appreciation.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Earn $2,000 in Passive Income in 2025 With Less Than $51,000 in Savings

You can invest in Canadian high yield stocks via the Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY).

Read more »

monthly desk calendar
Dividend Stocks

This 7.8% Dividend Stock Pays Out Every Month

Not all monthly dividend stocks are created equal. And this top stock is certainly a strong choice for passive income.

Read more »

A worker gives a business presentation.
Dividend Stocks

Is TMX Group Stock a Buy, Sell, or Hold for 2025?

TMX Group (TSX:X) stock has been a consistent wealth-builder, generating 4,630% in total returns since 2002. Should you buy, sell,…

Read more »

Man data analyze
Dividend Stocks

2 Deeply Undervalued Dividend Stocks to Buy in November

Here are two stocks that I view as deeply undervalued this November.

Read more »

Dividend Stocks

The 2 Best Canadian Blue-Chip Stocks to Buy Now

Blue-chip stocks can be some of the best stocks to have in any portfolio. But when they're trending upwards, investors…

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »