Should You Buy Enbridge (TSX:ENB) Stock for Your TFSA Today?

Enbridge (TSX:ENB) offers a 7.5% dividend yield. Should you buy the stock now?

| More on:

Enbridge (TSX:ENB)(NYSE:ENB) sold off in recent months and the stock continues to lag the broader market recovery.

Is this a golden opportunity for Canadian seniors and other dividend investors to pick up the high-yield stock for their Tax-Free Savings Account (TFSA) portfolios?

TFSA advantage

Young investors like the TFSA for its flexibility. Funds removed from the account to cover an emergency expense are not subject to a withholding tax, as is the case with early withdrawals from RRSPs.

The tax-free nature of the TFSA is also attractive. Investors can use the full value of dividends to acquire new shares and harness the power of compounding to build a large retirement portfolio. When the time comes to cash out and spend the money, all gains are yours to keep. That’s right: the CRA won’t take a cut.

Retirees benefit from the TFSA, as well. Dividends paid on stocks held inside the TFSA can go straight into your pocket. The CRA does not tax the gains and won’t include any income from the TFSA when calculating potential OAS clawbacks.

Top dividend stocks

Dividend stocks come with risk, but they offer much better yield right now than government bonds or GICs. The market pullback in 2020 finally gives dividend investors a chance to buy some top-quality companies at discounted prices. Ideally, these picks won’t require taking on too much capital risk.

Is that the case with Enbridge?

Let’s take a look at the energy infrastructure giant to see if it deserves to be on your TFSA buy list.

Enbridge stock price

Enbridge trades near $43 per share at the time of writing and offers a 7.5% dividend yield. The stock traded above $57 in February this year and spent most of the past five years in a $40-55 range.

Management launched a major turnaround initiative in 2018 to address investor concerns regarding the balance sheet and the company’s complicated structure. Enbridge sold about $8 billion in non-core assets in a bid to focus operations on regulated business segments. This shored up the balance sheet and made cash flow more predictable, which is a good thing for dividend investors.

Enbridge also brought four of its subsidiaries in-house to streamline the organization. The move means more cash flow remains inside the parent company and makes it easier for analysts and investors to evaluate the firm.

Overall, Enbridge should be a more attractive investment now than it was prior to the restructuring.

Pandemic impact on Enbridge stock

Oil volumes through the main pipeline system dropped in recent months due to pandemic lockdowns. Fuel demand plunged, forcing refineries to curb production. Enbridge transports crude oil from producers to their customers.

As the economy reopens, demand for gasoline and diesel fuel should continue to rebound. Enbridge’s liquids pipelines normally operate near capacity, so there is an opportunity to pick up the stock while it is out of favour.

The utility and renewable energy assets performed well in Q2, providing a nice hedge against weakness in the pipeline assets. Enbridge maintained its distributable cash flow guidance for 2020 when it reported the Q2 results. This is a good sign for dividend investors.

Should you buy Enbridge stock now?

Ongoing market volatility should be expected, but Enbridge appears oversold today. Investors who buy now can pick up a great yield with medium-term dividend growth of 5-7% per year expected once the economy normalizes.

If you are searching for a top-quality dividend stock to add to your TFSA dividend fund Enbridge deserves to be on your radar.

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.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Andrew Walker owns shares of Enbridge.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »