Enbridge (TSX:ENB) has gained momentum following the recent interest rate cut by the Bank of Canada. Investors who may have missed the initial rebound are now considering whether ENB stock remains undervalued and suitable for inclusion in a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
The Enbridge share price reached a high of $59 in June 2022 before experiencing a gradual decline due to interest rate hikes in Canada and the United States. The stock dropped to $43 last fall but has since seen an upward trend, with bargain hunters expecting further rate cuts in 2024.
The recent rate cuts by the Bank of Canada, coupled with expectations of similar actions by the U.S. Federal Reserve, are anticipated to continue supporting Enbridge’s growth. Lower interest rates benefit companies like Enbridge, which rely on debt for growth initiatives. The reduction in borrowing costs allows for more available cash to be directed towards dividends, debt reduction, or new growth projects.
Looking ahead, Enbridge projects an average annual Earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of around 5% over the medium term. The company plans to invest approximately $19 billion in projects between 2024 and 2026. Additionally, Enbridge has a strong track record of increasing dividends, with a current dividend yield of 7%.
Considering the potential impact of future interest rate cuts, Enbridge remains an attractive investment opportunity at its current price. With the possibility of the stock reaching its previous high by the end of next year, investors seeking high-yield dividend stocks may find Enbridge to be a compelling choice for their portfolios.
