Enbridge (TSX:ENB) recently hit a two-year low. Investors who missed the rally off the 2020 crash are wondering if ENB stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
The latest drop in the share price is due to Enbridge’s announcement that it is spending US$14 billion to buy three American natural gas utilities. The purchases of The East Ohio Gas Company, Questar Gas (in Utah), and The Public Service Company of North Carolina add roughly three million natural gas distribution customers to Enbridge’s existing gas utility businesses. Once the deals are completed next year, Enbridge’s natural gas utility business will be the largest in North America.
Enbridge’s chief executive officer says the deals are a “once-in-a-generation” opportunity at an attractive valuation. Investors are not convinced that’s the case. Enbridge stock fell as much as 6% on the news. Concerns about the amount of debt the company has to take on might be part of the reason for the drop.
Enbridge hasn’t announced plans to monetize other assets to pay for the acquisitions. The company is best known for its oil pipelines and its natural gas transmission networks. Enbridge moves 30% of the oil produced in Canada and the United States, and its natural gas lines already supply American utilities with 20% of the natural gas consumed in the United States.
Enbridge has an oil export terminal in Texas, a stake in a new liquified natural gas (LNG) facility being built in British Columbia, and renewable energy assets that round out the asset portfolio. At the time of writing, Enbridge has a market capitalization of about $92 billion, so it is large enough to do the deals.
Enbridge says the acquisitions will drive long-term growth to support ongoing dividend increases. The company raised the dividend in each of the past 28 years. Investors who buy the stock at the current price near $45.50 can get a 7.8% dividend yield.
Is Enbridge too cheap to ignore?
Near-term volatility should be expected, but investors seeking high-yield dividend stocks for passive income should consider adding Enbridge to their portfolios. Those looking more for total returns might also want to start nibbling. Enbridge was as high as $59 at the peak last year, so there is decent upside potential on a rebound.
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* Returns as of 8/16/23
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The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Enbridge.