Enbridge (TSX:ENB) recently gave back some of its big gains. Investors who missed the rally are wondering if ENB stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
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Enbridge stock price
Enbridge trades below $60 per share at the time of writing compared to $65 in January. The shares are still up about 30% in the past year.
The surge in the stock price over the past year initially came as investors started to bet on cuts to interest rates. As soon as the Bank of Canada and the U.S. Federal Reserve actually began to lower rates the stock picked up an extra tailwind. Pipeline companies spend billions of dollars on projects that can take years to complete. They borrow funds to finance the construction until the assets go into service. Higher interest rates drive up interest expenses that can cut into profits and reduce cash available for distributions. At one point, the market was concerned that Enbridge might have to cut its payout.
That didn’t happen. In fact, Enbridge raised its distribution by 3% for 2025. This is the 30th consecutive annual increase to the distribution.
Earnings
Enbridge reported adjusted earnings of $6.04 billion in 2024 compared to $5.74 billion in 2023. The company completed its US$14 billion acquisition of three natural gas utilities in the United States. Revenue and expansion opportunities from these assets will help drive growth in 2025 and beyond. Enbridge is now the largest natural gas utility operator in North America. The company’s natural gas transmission network moves about a fifth of the natural gas used in the United States. This positions Enbridge to benefit from the anticipated surge in natural gas demand as tech companies look to build gas-fired power facilities to provide electricity for artificial intelligence data centres.
Growth
Enbridge is working on a secured capital program of about $26 billion, of which $8 billion was added in 2024. Looking ahead, there is renewed interest in building new pipelines in Canada that could reopen growth opportunities for Enbridge. Investors shouldn’t buy the stock just on the hopes of new major development projects in Canada, but there is at least the potential for expansion that wasn’t considered remotely possible six months ago.
The current development program is expected to deliver adjusted earnings before interest, taxes, depreciation, and amortization of 7-9% for 2023 to 2026. Adjusted earnings per share should increase by 4-6%. Distributable cash flow is targeted to grow by 3% over that timeframe. This should support ongoing dividend increases in the same range.
Investors who buy ENB stock at the current level can get a dividend yield of 6.25%.
Time to buy?
Near-term volatility is expected due to the trade uncertainties with the United States. That being said, income investors should be comfortable buying Enbridge on this pullback and could look to add to the position on any additional weakness.
