Enbridge (TSX:ENB) is down more than 25% from the 2022 high. Investors who missed the rally after the 2020 market crash are wondering if ENB stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income or a Registered Retirement Savings Plan (RRSP) targeting total returns.
Enbridge assets
Enbridge is broadly known as an oil pipeline company. The firm moves 30% of the oil produced in Canada and the United States and added an oil export terminal in Texas in 2021 to capitalize on growing international demand for the oil produced in the two countries.
Getting large new oil pipelines approved and built is very difficult in the current era due to public and government opposition. This limits growth opportunities in the oil pipeline segment, but it should also make the existing infrastructure more valuable.
Enbridge is shifting its investment focus to its other divisions to drive growth. The company recently announced a US$14 billion deal to buy three natural gas utilities in the United States. Enbridge already owns natural gas utilities in Canada, so it has experience operating these assets. The combination of the gas distribution assets with Enbridge’s existing natural gas transmission network puts the company in a good position to benefit from the anticipated transition to hydrogen in the coming years. Enbridge also has a stake in the Woodfibre liquified natural gas (LNG) export terminal being built in British Columbia.
On the renewables side, Enbridge purchased a solar and wind turbine project developer last year to boost its renewable energy asset base.
All of the recently acquired assets, along with the $17 billion capital program, are expected to generate revenue and cash flow growth in the coming years.
Dividends
Enbridge increased its dividend in each of the past 28 years. The days of double-digit annual dividend growth are likely over, but a steady increase in the 3-5% range should be attainable for the business. At the current share price, the dividend provides a yield of 8.1%.
Should you buy ENB stock now?
Rising interest rates are the main reason for the slide in the stock price over the past year. The Bank of Canada and the U.S. Federal Reserve could start to reduce rates in 2024 if inflation looks like it is headed back to the 2% target.
As soon as the central banks indicate they are done raising interest rates, there could be a big surge in the share prices of beaten-up dividend stocks, like Enbridge.
Near-term volatility should be expected. However, Enbridge pays an attractive dividend that should continue to grow. If you have some cash to put to work in a portfolio focused on high yields, ENB stock deserves to be on your radar.
