This is a multi-part series exploring in-depth each of the individual allocations I have in my B&D investment portfolio.
In today’s post, I’ll dig into ENB which is the stock ticker symbol for Enbridge. I’ll talk about:
- what it is
- the actual allocation in the portfolio
- why I hold this in my B&D portfolio
- fees/costs to hold it
- the income it pays me
- its growth potential
- which investment vehicles (TFSA, RRSP, LIRA, non-registered account) I put this stock in
- Alternative stock(s) for tax loss harvesting purposes
- the future of it in my B&D portfolio
Information provided is considered accurate and up to date at the time this post was published.
What is it?
Unlike the prior blog posts which were for ETFs, this one is actually a stock.
From the Enbridge Inc. website, I pulled the following:
Enbridge is one of North America’s largest energy infrastructure companies with an extensive delivery network of crude oil, natural gas, natural gas liquids and renewable energy.
I also pulled the following summary from Wikipedia just to add a different perspective:
Enbridge Inc. is a multinational pipeline company headquartered in Calgary, Alberta, Canada. Over time, it has grown through acquisition of other existing pipeline companies and the expansion of their projects. It owns and operates pipelines throughout Canada and the United States, transporting crude oil, natural gas, and natural gas liquids. Enbridge’s pipeline system is the longest in North America. Its crude oil system consists of 27,500 kilometres (17,100 miles) of pipelines. Its 38,300 kilometre (23,800 mile) natural gas pipeline system connects multiple Canadian provinces, several US states, and the Gulf of Mexico.
Enbridge has built several renewable energy projects in North America and Europe in recent years, and has proposed a net zero greenhouse gas emission target for 2050.
Enbridge has been responsible for several oil spills, including a spill on line 3, which was the largest inland oil spill in the US. Opposition to Enbridge projects has resulted in several popular uprisings, most notably the Dakota Access Pipeline protests, and the Stop line 3 protests.
THE PORTFOLIO ALLOCATION
Why Hold it in my b&D portfolio?
The reason I hold this stock as part of my B&D portfolio is not the same as the prior blog posts in this series as related to VSB, MFT, ZPR, VCN, and VDY. When it comes to Enbridge, it’s a result of FOMO.
That’s right. You heard it right. Even I have succumbed to FOMO once in a while. It was January 2020. My brother had bought Enbridge a bit earlier and was riding an upward wave in the stock’s price appreciation. He was also super excited about the dividend it paid which was about 6.50% when he bought in. I had included it into my stock list just to watch it. And on it trucked upward, day, after day, after day. And then I felt it.
Unbridled FOMO! Raging through me.
Being cautious, I bought some but only about 7% of my portfolio.
And then, I watched the stock price start to fall…precipitously. Lol. Shiiiiiiiittttttt!!!
I checked in with my brother. Did he still have it? No…he sold it just after it had peaked. Raving about it while it was going up…completely silent as he sold and the stock was dropping. Shiiiiiiiittttttt!!!
I was not a happy camper. Not with my brother but myself. He’s not respinsible for my decisions. That falls squarely on me.
Well, at least I had a nice dividend, so I thought at the time, let’s just ride this one out.
And then COVID hit and Canada locked down in March 2020. And the stock market tanked. And Enbridge with it. And you know what I’m about to say. That’s right. Shiiiiiiiittttttt!!! And I sure use a lot of “and”.
At least I didn’t completely lose my mind. I did remember Lesson #3. I said to myself that I was coming close to my retirement time and that Enbridge did have a very sweet dividend that qualified for the Canadian Dividend Tax Credit which was previously discussed in prior posts in this series related to VSB, MFT, ZPR, VCN, and VDY. Done correctly, taking advantage of this tax credit equates to paying no income tax whatsoever on around $50,000 if your only income was from eligible Canadian dividends. The dividend for Enbridge has been consistently paid for a very long time and there have been dividend increases for at least the last 25 years.
So, I sat back and let things ride.
And, here we are today. With Enbridge still part of my B&D portfolio. Still paying a very sweet dividend.
When it comes to 2022, it has been the star performer of the B&D portfolio.
the associated fees/costs
Unlike ETFs that have an MER (management expense ratio), stocks don’t have this. as a result, the only potential cost to holding something like Enbridge is a commission fee for buying or selling it. There are many online discount brokerages like Wealthsimple in Canada that don’t charge one. (I have no affiliation to Wealthsimple). Therefore, it is possible to buy or sell a stock with zero costs.
income Received from this Stock
Very simply, Enbridge pays out Canadian dividend income. That means for every dollar earned (assuming it’s in your non-registered account), you get a Canadian Dividend Tax Credit and reduce the amount of income tax owing.
Please note that taxation does change if the dividends from Enbridge are tax sheltered or tax deferred. The investment vehicle (e.g.: TFSA, RRSP, LIRA, non-registered/cash/margin account) that houses the ETF will determine which tax situation applies.
Growth potential for this Stock
From my personal experience, Enbridge has been a medium growth stock.
Looking at the chart below, many of you would say, hey, hold on there! Enbridge has an all time growth of over 1,400%.
That is true however since 2014 or so, that growth rate has slowed. As a result, I don’t consider it to be a high growth stock.
Placement in Investment vehicles
I’m a Canadian with tax residency in Canada so investment vehicles and tax treatments are related to Canada. I currently have a TFSA, RRSP, LIRA, and a non-registered account which is also known by many as a cash account or a margin account.
Legally minimizing and/or deferring the greatest amount of taxes possible is the primary criteria I use to decide which investment vehicle to house an ETF, or a stock in this case. Since I have a TFSA, RRSP, LIRA and a non-registered account, I use a 3 level filter which is below.
PRIMARY: TFSAs are for investments with the highest capital growth potential as it offers tax-free compounding and any withdrawals made are tax free as well.
SECONDARY: The non-registered account takes up any of the surplus that doesn’t fit in the TFSA. Also, any investment income that has preferential tax treatment such as capital gains (as I write this, only 50% of capital gains are taxable) or is eligible for the Canadian Dividend Tax Credit should be going in this account.
TERTIARY: RRSPs/LIRAs take up any of the surplus that doesn’t fit in the TFSA and the non-registered account. Therefore, the lowest growth investments would be found here as well as investments with the heaviest taxable income generated (in most cases, that would be bonds). The benefit of an RRSP/LIRA is that any income taxes owing are deferred until I decide to withdraw from them. The full amount withdrawn is taxable in the same way as employment income. Any taxes paid at withdrawal are based on whatever tax bracket I fall into for that particular calendar year. Therefore, compounding can occur tax free until then.
Based on the above criteria, in which investment vehicle(s) do I currently have ENB?
I actually hold this stock in my non-registered account. Three reasons for that.
First, I have the room in my non-registered account.
Second, it’s a medium growth stock and therefore I would not hold it in my TFSA as I have higher growth ETFs housed there.
Third, the favourable tax treatment when it comes to the dividend. Same goes for any capital gain that could occur (e.g.: if I need to sell a portion of it for rebalancing purposes or simply sell it completely).
tax loss harvesting strategy
Tax-loss selling (or tax-loss harvesting) occurs when you deliberately sell a security at a loss in order to offset capital gains in Canada. You can then use these losses to offset your taxable capital gains. This applies to the non-registered account only. The other investment vehicles (TFSA, RRSP, LIRA) are not eligible for this.
In Canada, the last day in a calendar year for tax-loss selling is typically the third to last business day of the year (not counting any statutory holidays that could happen between then and the end of the year). If you sold at a loss on or before that date, you’re able to deduct your loss against your gains in that calendar year. However, you can also carry your loss back for the previous three years to offset capital gains or carry it forward indefinitely to offset future capital gains.
Also, beware causing a wash sale. This can also be called the superficial loss rule. What this means is that if an investor buys back a security within 30 days of selling it, then they are not permitted to claim the capital loss for tax purposes. Failing to obey the 30-day rule will result in the capital loss being disallowed for tax loss harvesting. To avoid this, I would buy an ETF similar to the one sold but measured on a slightly different index. A wash sale can also occur if you sell in one investment vehicle (e.g.: your non-registered account) and buy that same stock in another (e.g.: your TFSA) so be careful to not do that within the 30 day period.
In this case, Enbridge is a stock. It does not track an index as with the ETFs I have spoken about in the previous segments of this portfolio allocation series. If I decide to sell Enbridge though, I would simply shift the funds into ETFs, not back into a stock. As mentioned at the top of this post, Enbridge was purchased as a result of FOMO. My goal is not to repeat that decision.
The future of this Stock
At this time, Enbridge does provide a tasty dividend. Also, it has been a useful piece of the B&D portfolio, especially when it comes to 2022 where most everything has been negative. Enbridge, on the other hand, has been a stellar player with a positive double digit return for 2022. As I write this.
All that said, if the dividend yield for it no longer outpaces the rest of the market, it will be time to part ways with this stock.
Summary
So that’s my overview of the stock Enbridge (ENB) that currently holds an allocation in my B&D portfolio. Please let me know what you think. Was the overview useful? Was anything missing? I’m happy to hear all feedback.