Enbridge (TSX:ENB) is off its recent multi-year high after a strong rally over the past year. Canadian pensioners and other TSX investors seeking high-yield dividend stocks who missed the rebound in 2024 are wondering if ENB stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA).

Enbridge stock

Enbridge fell from $59 per share in June 2022 to as low as $44 in October last year. The stock then started to recover and recently topped $61.

The drop and subsequent recovery are largely due to movements in interest rates in Canada and the United States over the past two and a half years.

Operationally, there wasn't any reason for the stock to move materially lower, but investors started to get concerned that the sharp rise in interest rates would drive up interest expenses so much that Enbridge might be forced to cut the dividend to preserve cash.

Late last year, the central banks indicated they were done raising rates to get inflation under control. At that point, market sentiment shifted from expectations of more hikes to anticipation of rate cuts in 2024. In the past six months, the central banks have delivered cuts to try to navigate a soft landing for the economy. This provided extra support for Enbridge and other pipeline stocks that use debt to fund their capital projects.

Risks

The recent pullback in the stock is due to investors wondering if the market has gotten ahead of itself on anticipated additional rate cuts.

Canada's economy is slowing down, and unemployment is rising while inflation remains close to the 2% target. This situation supports more rate reductions. In the United States, however, inflation is moving up again, and the economy remains in good shape, with unemployment still very low. The Federal Reserve just cut interest rates by another 0.25%, but indicated that 2025 will likely only see two more 0.25% cuts, rather than the four cuts of that amount that were forecast just a few months ago.

Donald Trump says he wants to place tariffs on all goods entering the United States next year. If that happens, there could be a surge in inflation as businesses raise prices to cover the added expenses. That could force the American central bank to put rate cuts on hold or even raise rates again if inflation moves aggressively higher.

Enbridge has extensive assets in the United States, and the bulk of its growth program is located in the American market. Higher borrowing costs could slow down growth projects and would once again put pressure on profits and cash.

Opportunity

Enbridge currently has a $27 billion secured capital program on the go that it says should provide steady growth to earnings before interest, taxes, depreciation, and amortization of 7% to 9%. Distributable cash flow is expected to rise by about 3% per year over the medium term. This should support regular dividend hikes.

Enbridge has increased the dividend for 30 consecutive years. Investors who buy ENB stock at the current share price can get a dividend yield of 6.35%.

Time to buy ENB stock?

I wouldn't back up the truck today. The broader market is due for a correction, and any hint that the U.S. Federal Reserve will put rate cuts on hold could trigger a new pullback for pipeline and utility stocks.

That being said, income investors with a buy-and-hold strategy should be comfortable owning ENB stock for the dividend. If you have some cash to put to work, you might consider nibbling a bit now for the attractive yield and look to add to the position on any material weakness.