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richjoy403 profile picture
I'm long ENB. It appears to be a crapshoot (high risk).

Either Mr. Market is very wrong about ENB, and longs like myself will do VERY well.
Or he's right, and longs will either take their lumps and move on, or do very poorly for a long time.

Dale Roberts profile picture
Morningstar has it as a 5 star *****, great prospects, div growth covered, great acquisition, great future cash flow etc, etc, etc,

Not that I would base my investment on any short term stuff, but that's what those folks have to say.

richjoy403 profile picture
Dale -- Agreed, Morningstar analyst Joe Gemino wrote quite favorably of ENB on Feb 20th, and assigned FV at USD $51 (+65% to today's share price).

However, as you know, Mr. Market has been negative on ENB for about 2 yrs (since trading at $54 in April 2015), and that negativity is both unabated and increasing--ENB shares have lost 25% in last 52-wks, and only yesterday reached a fresh 52-wk low at $31.19.

Mr. Market and Morningstar can't both be right.

So Dale, are you saying ENB is terribly mis-priced and represents that rarest of stocks--very little risk for very large rewards?

[BTW, I'm willing to be convinced, having averaged down, ENB is one of my largest positions.]
Dale Roberts profile picture
Hey Rich, I have no idea, of course :)

6019791 profile picture
Opinion check:

1. Pointing fingers at politicians is a waste of time for serious investors. Trudeau, Trump, May, Merkle, or Putin etc. could be your best friend or worst enemy on any given day for any given stock. On the whole political decisions average out to be 50% good and 50% bad for me. If politics comes up in an investing conversation, I quickly tell political finger pointers that I don't support any political party or politician. Their interests and my interests are quite different. They have to run their countries, I have to make money. End of story.

2. That said, as a person I like Trudeau (because I liked his father), and I'm about 50/50 on Trump (as a person). Both countries seem to be humming along just fine as far as my investments go and that is all that counts for me. But in the end, politicians and political decisions just aren't in my DNA and certainly have no place in my investment portfolio other than as 'factors'.

3. Canada is pretty well built out with pipelines and thus pushing into the US is Enbridge's strategy. Also, pipelines operate on long term fixed contracts, so there is no way to grow by raising prices other than those specified in the contract. Those contracts are what makes Enbridge a wide moat business. Corollary: They have to grow and growth comes from acquisition thus debt and issuance of new shares.

4. Enbridge is not exclusively a Canadian company especially since they gobbled up SE, a significant player in the US at the time. Also, pipelines don't know about borders. They go where they go. Just guessing, but I expect much more Canadian oil / gas goes south than east or west.

I'm long TRP, ENB, ENF, PPL (Can), and have been long KMI, SE, and KEY (Can.)
I'm the event that any company dividend was cut let's say by 30% what % the shares may drop by?
Trapping Value profile picture
Hard to price that in currently.
Some stocks like Dream Office have rallied on each of their two cuts, while ones like NS, which you have to be dumbest analyst on the planet not to see that cut coming, still tanked after cutting.
TV, thank you for writing about Enbridge, one of our wide-moat Canadian companies.
I want to start investing in ENB, but what gives me pause is that the future isn't fossil fuels. It's renewables.
What do they use to create electricity....they are fueled more and more by Nat. Gas. (long EEQ)
We will still need oil and gas for a long time. However With more young people not buying cars, I wonder how much this will lower demand. I expect it to be offset with increases in demand due to higher levels of manufacturing and transport of goods.
Trapping Value profile picture
Look at demand globally, not just locally.
I don't like the fact that insiders sold $32M worth of shares in the last year and bought just few hundred throusand.
Trapping Value profile picture
Insiders usually sell because they get so much stock. I personally regard insider buying as bullish but completely disregard insider selling in all stocks.
I agree. But When the market is very wrong about fundamentals and prices stock lower you usually see buying. Insiders get a lot but no one would refuse a quick buck. When NTR plummeted there was immediately insider buying, same with CNR. But not with Enbridge.
I am just speculating wether to go overweight or not...
Dale Roberts profile picture
This is likely the deal with Enbridge, and I will certainly add a couple of times before my pending 'semi retirement' - it's either the deal of the decade, or it's about to get hurt. Those will the 'guts' to get in (or add to) when very few want it, will be rewarded handsomely with an incredible yield that is promised to grow at 10% annual, or the dividend will be cut or frozen and the share prices will likely suffer tremendously.

I hope my recent history repeats, sticking with the companies and management when my companies are out of favour turned out to be quite profitable. Even adding to my Canadian banks and pipes from late 2015 and into 2016 was very profitable. Enbridge is certainly the odd one out with greatly boosted income but not total returns, yet.

This will either be a great success or a short term failure.

Again, happy to add.


I wish you the best of luck with this one, I really do, but with $91 billion in long-term debt and liabilities, 40% of the operations in anti-pipeline Canada, and the start of a rising rate cycle there are more headwinds than tailwinds for the company.

Interest and dividend payments take up 100% of cash flow so the company remains at the mercy of the market. Further they have already indicated that they are planning on raising another $19 billion in equity going forward (See TV's chart above). ENB used to pay a dividend as a portion of net income, now they pay based on cash flow, and with a 100%
payout ratio (dividends and interest) they have little or no room for error.
Trapping Value profile picture
Nippy Q4-2017 ratio was under 70%. Even Q3-2017 was quite good.
You really have to ignore Q1-2017 as the acquisition closed end of Feb distorting the numbers.
If you did go by EPS, you would never buy a single REIT BTW as they all have very low or negative EPS.
Dale Roberts profile picture
They feel they have a long running cash machine, well as per the last few decades; they’ve simply reloaded. We’ll see.

TV, believe its best to hold ENB in a tax advantaged account, in a regular account U.S. investors will be hit with dual taxation ( Can& U.S.) tax treaty with Canada eliminates withholding of Canadian taxes in tax advantaged accounts.
Trapping Value profile picture
That is correct gs3.
Thanks for mentioning it here.
CincinnatiRick profile picture
Dual taxation??? Please! Taxes withheld in taxable accounts from foreign source dividends are 100% credited on your US tax obligation (up to $300 for a single taxpayer and $600 for a couple). Above those limits, you can still get full credit as long as the withholding rate does not exceed your equivalent US rate for the particular type of income. With Canada withholding at 15%, it should never be an issue on Canadian dividends.
Trapping Value profile picture
Sorry my bad. CincinnatiRick is correct. There is no double taxation. I did not read GS3's comment correctly and I was agreeing with the advantage of holding inside tax advantaged accounts where thanks to US-Canada treaty no taxes are withheld.

You do however get credit for any taxes withheld in regular accounts as CR mentioned.
Long EEQ.
sphereless profile picture
The bear is not done with high yield yet (hopefully soon). But sometimes you got to snuggle up to the bear, give his belly a rub and hope he does not eat you. C'mon bear, lighten up on my portfolio, go back to the woods and hassle some bees (honey drinking SOB).

Thanks for the article TV. Tomorrow I add some more, who will be the lucky bride.. ENB, ENF or PEGI?
Trapping Value profile picture
Am I adding PEGI Sphereless?
Negative Ghost Rider the Pattern is Full.
In the long run ENB earns a solid 1.60- 1.70/ share like clock work ! Once debt is addressed it will be great ! Market Cap is Huge for this company so , debt is large as well for expansion. If they stopped paying such rich Div increases , the debt would be reduced quicker !
6019791 profile picture
TV, I read the article with great interest. I'm long ENB only because of SE shares that were converted. I have added from time to time and supportive of owning ENB even though I'm looking at a fair size paper loss for the moment. However, my focus is long term and I'm relateive patient. I'm enjoying the dividends. (or getting paid to wait, as they say.)

A different way to invest in Enbridge is ENF (Enbridge Income Fund Holdings) listed on the TSX. It is the drop down holding company for Enbridge's yieldcos. My take on ENF is it is comprised of slower growing assets that are still profitable. ENB 'drops these down' to ENF so the parent company (ENB) can pursue growth opportunities. But, please do your own DD as this is being written during a busy morning.

The yield for ENF today is 8.48%. It has the backing of the parent company and its assets are reasonably safe in my opinion. Also, similar to the parent company, there is a promise on the table of 10% dividend increases through 2019. It also pays monthly.

There are other similar arrangement in Canada such as Transalta (TA) parent, and Transalta renewables (RNW) drop down assets.

I'm long ENB, ENF, and RNW.
Trapping Value profile picture
Written on all of the, 6019791.
Good companies. All being thrown out with the bathwater.
Shea20 profile picture
So tempted to go overweight ENB (but I won't). People often talk about regulatory concerns in Canada, but the Federal government is actually fairly pro pipeline. In the end they control what gets built, not their provincial counterparts.
Stock Market Mike profile picture
As long as they follow their own laws. That was the problem with the prior government. They were even more pro pipeline than this one, but broke so many laws that the courts tied everything up to this day.

Actually, it seems to me a watered down version of ETP. Both have sky-high debt level, both are trying to delever through asset sales, both are relying heavily on increased future cash flow from new projects to reduce leverage, both have regulatory problems for those projects. ENB is in better shape financially,; ETP just came in with a knockout quarter as their projects are starting to deliver.
Spekulatius profile picture
If anything, ENB is more like ETE, because it is a general partner for some MLP. overall, I think it is more like ancrossover between and utility and KMI.

ENB balance sheet will automatically delever since the cash flow from all those new projects starting to flow, increasing the EBITDA while keeping the debt even. they also have less commodity exposure than KMI (KMI is into tertiary crude via their CO2 segment )
JJeljefe profile picture
Do you think ENB could ultimately play out like KMI did? For example, commiting to sizable, future dividend increases, while maintaining high debt. Is this just a watered down version of KMI? I'm long ENB & would like to add more...but I'm somewhat leary.
Trapping Value profile picture
Anything is possible but considering that they made it through 2016 oil price crash and ow little of their cash flow is at risk, the chances are low. But there is a reason I hold over 70 stocks and it is not because I like my broker.
Dale Roberts profile picture
Ha, I hold 1/10th of that for Canadian holdings in my RSP. My Canadian Wide Moat 7 that includes ENB and TRP.

Some US holdings as well of course.

Trapping Value profile picture
What is your total Dale?
Hi TV - hope you recover soon. Do you have any broad thoughts on ENF, which I own for income?
He has written about ENF, and he said at that time he is long and likes the name.

His article may be behind a paywall now.

TV writed an article, mentioned rotating out of BRE. And down it goes 2 % in the first hour. You harnessed some power man.
Trapping Value profile picture
I should have sold all then!
It is thinly traded and a great company. I did a small rebalance on my portfolio and that was where I took some off. I have a buy again price in mind should it get there and if I have cash.
I am just saying that your articles have earned you some following and people listen to your opinion.
Great company it likely is, but I have a guy feeling Canadian home market will have a bumpy year. There might be less realtors in Canada soon, which may affect the subscription revenue to LePage.
Trapping Value profile picture
Good points astro.
I too think the 3 rate hikes will make Toronto a bit more bumpy for housing sales.
Enbridge did not buy SEP, it bought SE (spectra Energy) and with that purchase, it included SEP, which is the MLP for spectra...
Trapping Value profile picture
You are correct. Was not thinking straight as I wrote that. They bought the company and it is no longer listed :). submitted edit.
Greg Merrithew profile picture
ENB has a book value per share as of year end 2017 C$34.30. Closing price yesterday was C40.81. P/BV ratio of 1.19. Annual dividend of C$2.68 and has increased divvy on average 10% annually in last five years. Has locked in contracts moving forward for the next 20 years including take or pay clauses. ENB is a regulated utility with stable cash flow. Morningstar gives ENB a wide economic moat. The company is well managed.

I am buying today for long term hold given the 6.58% dividend and expected div increases along with full expectation the share price will, in the long term, climb. Long ENB.
Trapping Value profile picture
I would assume real tangible book value is close to $55.
GAAP depreciation is not our friend :).
It is an utility business and as long as oil stays over $40, there is zero counter party risk as well.
That wide moat might also be deep and under ENB.
Trapping Value profile picture
The stock price aside, do you see any deteriorating fundamentals?
They had a blowout DCF of $1.05 with a sub 65% payout ratio.

Their longer term cash flow outlook also improved because of lower taxes (when they pay down the line).
InvestRite#1 profile picture
These are not day to day fluctuations, the chart is down and to the right. Also ENB's P/O Ration is 145% It has been inconsistent in EPS and its Debt to Equity is 112.
The yield is tempting, but in any rate environment what I want is a steady growing dividend. I don't see it here, specially with a loss in share value, means for a too low CAGR, which I did not calculate.
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