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The Falling Knife Worth Catching This Week

Apr. 04, 2018 8:59 PM ETEnbridge Inc. (ENB), ENB:CA95 Comments
The Dividend Guy profile picture
The Dividend Guy


  • Management announced double-digit dividend growth for many years.
  • It started the year with a +10% increase, yet the stock is down 20% year to date.
  • Are investors expected to be “Kindered” again?

The stock market is full of irony. When management announces double-digit dividend growth for several years, you usually expect investors to open champagne and celebrate. And those investors should also be raising their cash in the air to buy a stock offering a 5-6% yield with such an announcement.Image source

What is up with Enbridge (NYSE:ENB) since the beginning of the year, then? Management announced 10-12% CAGR dividend growth through 2024 last year. Even better, it has met its promise so far in 2017 and 2018. Still, the stock is down by more than 20% since the beginning of 2018. The path to double-digit dividend growth seems compromised in many ways.

Before I show you the light, let’s take a walk on the dark side. I’ll tell you what bears are whispering in the woods. Definitely, they think management is about to do another Kinder Morgan (KMI) story here. Do you remember this CEO announcing that everything was fine while hiding its dividend scissors behind his back? This is what we call being “Kindered.”

1. Enbridge's many projects won’t happen

Image source

In 2017, Enbridge rose over $14 billion in capital and funded for $12 billion in projects. Management expects to keep such pace in the upcoming years to support its generous dividend policy. ENB put $7 billion in projects on the table for 2018. Those are crucial to support its cash flow, for e.g. its dividend. While this shouldn’t be a problem, many investors are worried about 2019. Next year, ENB expects to fulfill $13 billion in projects, including a $7 billion investment in Line 3 replacement.

Source: ENB investor presentation

While the Line 3 replacement project received many regulatory approvals so far, there are opponents among local communities. Such opposition could delay this project and raise its costs significantly. In the

Many investors focus on dividend yield or dividend history. I respectfully think they’re making a mistake. While both metrics are important, aiming at companies that have and show the ability to continue raising their dividend by high single-digit to double-digit numbers will make your portfolio outperform others. When a company pushes its dividend so fast, it’s because it is also growing their revenues and earnings. Isn’t this the fundamental of investing – finding strong companies that will grow in the future? If you are looking for a great combination of dividend and growth, check out my picks at Dividend Growth Rocks.

This article was written by

The Dividend Guy profile picture
My name is Mike and I’m the author of The Dividend Guy Blog & The Dividend Monk along with the owner and portfolio manager here at Dividend Stocks Rock (DSR). I earned my bachelor degree in finance-marketing, own a CFP title along with an MBA in financial services. Besides being a passionate investor, I’m also happily married with three beautiful children. I started my online venture to educate people about investing and to be able to spend more time with my family. I started my career in the financial industry back in 2003. I earned several promotions along with a good pile of diplomas. I had lots of fun working with clients in private banking for half a decade, but thought I could do more with my life. In 2016, I decided to take a leap of faith and left everything behind to travel across North America and Central America with my family. We drove through nine countries and stayed three months in Costa Rica before returning home. This was an eye-opening adventure that led me in 2017 to quit my job in the financial industry and pursue my dream; helping others with their personal finance through my investing websites. You just found the reason why I quit my suit & tie job!

Analyst’s Disclosure: I am/we are long ENB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (95)

Dividend Pro profile picture
Just caught this falling knife ENB, and increased position. Could not resist at this price. It was between PPL and ENB. IPL is not expected to do so well over next 2 years, according to FAST graphs, and other sources, and PPL is a bit too pricey. So easy pipeline decision.
While cash flow has about doubled the past 5 years so has the number of shares. Basically ENB spends a fortune every year to stay in place. If you still like ENB I don't get why you don't lover IPL. Same doubling of cash flow, a higher dividend without the nutty capex and share sales. Dividend grew half as fast, but it's a real dividend supported by real free cash flow. With ENB you are basically being paid with your own money as they essentially never have an even positive free cash flow.
Greg Merrithew profile picture
I love IPL! Very long IPL, ENB and TRP holding all 3 for the dividends
Dale Roberts profile picture
I also add to a bunch of these pipes by way of Vanguard VDY for my wife's acct and the Tangerine Dividend Portfolio at workplace. Interestingly the MSCI index does not hold ENB. Did not pass the dividend quality screen, I guess. ha. Pembina and InterPipe make the list.

This is one of the worse performer in the last 2 years compare to its peers. Stock went from mid $40s down to $30. Lots of promises but nothing have delivered yet.
Dale Roberts profile picture
Hey jay, the stock is doing terrible as the dividend does incredible things. We hope that continues but we don't know the future. We are now able to buy a current dividend yield that is near its 10 year high? Or at its 10 year high? I will be adding again soon, ditto for TRP. My final top up before I hit semi retirement. :)

Stock goes down, share count and dividends go up on repurchases. While not my largest holding, it is now my largest dividend source due to the repurchase(s).

This might be the dividend growth stock deal of the decade or trouble, ha.

The Dividend Guy profile picture
Keep in mind that 2 years is very little time for a long term investor. I've held onto other companies that were dead money for a few years and then skyrocketed. If ENB Line 3 replacement is approved next June, you can expect the stock to jump by nearly 10% on that week. In the meantime, I'll cash the dividend.
Have been reading Wells Fargo newest report on ENB.
ENB appears ready to roll up EEP/EEQ.
Then ENB also appears to need more cash to improve credit rating...and therefore lower cost of capital. So ENB will try to sell some of their 83% stake in SEP. All this is in addition to selling off some assets as has been recently announced.
Since SEP, EEP, EEQ share prices are all at all-time lows. This helps ENB with being able to buy EEP and EEQ cheaply and accretive to ENB dcf(distributive cash flow per share).
The problem for ENB is SEP share price being too low. Thus ENB will try to maintain it's dividend increase history going forward. But like ENB has always done before management will disappoint some SEP investors with bad news about no increase in distribution next year. This bad news is probably already factored into SEP's share price.
ENB will issue SEP equity and thus dilute the public float. It will not be accretive for SEP investors, but ENB will for now be able to increase their dividend next year.
This is what the Wells Fargo report shows. So everyone can take this for whatever it is worth to you.
All this is to lower ENB consolidated debt to EBITDA number from 6.6 to 4.9.
For if ENB can pull this off, their credit rating will be upgraded. IMHO
ENB holding up pretty well with the current turbulence in the markets. Maybe $30 is the new bottom.
Mili21 profile picture
Yeap...ENB seems to be forming bottom around $29 ....
I am waiting for the final result announcement around July....to see the stock fly high...
Great article. Bought more
Greg Merrithew profile picture
Good article DivGuy. Don’t worry about the grammatical challenges. The quality of the article outshines those minor edit requirements.

What do you make of the HeHo wind farm sale notice? I did not see that coming re: debt control. Especially sinc it was a recent acquisition with potential upside cash flow in the near term.
The Dividend Guy profile picture
Thx Greg,
In regards to the renewable energy assets sale, I think ENB just got caught by credit agencies and nervous shareholders and management must please them before going further with their plan.
These were good assets (especially looking for the long haul), but ENB must focus on getting its 2018-2020 projects in place before it can think of expanding to renewable energy at the moment. I wish It could have kept those...
I'm glad you brought this up... I can't decide whether ENB Mgt is smart to raise cash to lower debt, or showing signs that fear monger a are correct about complications of EEP v ENF and chances that rating agencies might lower credit rating... Certainly the sales will lower DCF. Are these asset sales net good, or net bad? Thx (ps: great piece and lots of good commentary!)
In regards to filing to get back the 15% Canadian tax on their divs. - if the tax is over $600 ( filing jointly - less if single ) then an IRS form 1116 has to be filed ( rather complicated ) and in a lot of cases this form will actually cut back the amount of Canadian tax rebates you will receive.
mikes425 profile picture
I've bought a small position in this for my largely fund-based account. I also have some CBA
MLP which has really taken a hit for me in the past year while it maintains a 10% qtrly div. Anyone have some perspective on that specifically or that sector generally? Just weighing how long before it may rebound
Amadori0 profile picture
Salut Dividend Guy,

can you tell me what you think of Laurentian Bank now? Went down quite a lot on an accounting issue, but pays a great dividend. Should go up again soon, do you think?

The Dividend Guy profile picture
Bonjour Amadori0!
To be honest, I'm not a big fan of Laurentian Bank. I've done a detailed analysis for Dividend Stocks Rocks not too long ago. The bank has always had a hard time establish a long term growth strategy. It keeps going from one strategy to another (e.g. opening tons of branches, then cutting them down, trying B2b, now eyeing wealth management, etc). I don't think it has what it needs to compete against National Bank for example.
Cuip99 profile picture
Uh - ENB did not acquire SEP. It merged with SE. SEP is indeed controlled by ENB and it has substantial control via the merger with SE. It has not acquired SEP. I once owned both SE and SEP. I sold off my SEP and my SE was absorbed by ENB. I consider the ENB ownership a disaster but have other reasons to continue to hold the stock. Perhaps in time I will come to admire and like the company but not now.
The Dividend Guy profile picture
You are right, the ticker appeared automatically (SEP instead of SE).
sorry for that.
Dale Roberts profile picture
Hi Div Guy, I've added more, and will add more to ENB and TRP. More soon for my BCE and Telus as well, Utilities and the new utilities.

Bonne journee ...

The Dividend Guy profile picture
Great picks!
I'm out of cash (put everything left on ENB), but BCE and Telus are definitely long term hold (read hold forever) dividend paying stocks.
sjm- cfa profile picture
Just started a position in ENB yesterday. Great article, with discussion of pros and cons. I am looking more closely for those co.s with ample capital redeployment opportunities. Amazon buying Whole Foods suggests to me the tech sector may have capital redeployment issues (granted, a high class problem).
Let's hope that if ENB rises, so does EEP and EEQ
RiceBowl profile picture
I think emergy companies are very risky, don’t see any upside for years to come unless they start to adapt to new technologies. Future is electric, micro-grids and renewable. The old guys are too slow to adapt and the new guys dont have enough funding and market share to profit enough yet. Only few exceptions on the market but I don’t see this one as one of them.
No one has mentioned the high payout ratios both DPS/EPS and DPS/FCFPS. Why?
The Dividend Guy profile picture
The whole dividend strategy is based on future projects. This is why investors get so nervous. As another contributor mentioned; if Line 3 replacement isn't approved, the 10% dividend growth expected in 2019 will likely not happen.
There is zero chance of line 3 being rejected as there are no grounds for rejection. The Minnesota review is a environmental hazard review and the new pipeline is a big improvement over the old it replaces. Enbridge is jumping through the required hoops.
Implies rationality. People who don’t like pipelines are not rational.
jstratt profile picture
I have stayed out of the midstream world but decided to snatch a little ENB near its lows.
Yes bpl ugly
How about kmi . I always don’t know which one to hold on the same theme . But eventually taking both
The Dividend Guy profile picture
I personally don't trust management who once said "everything is fine" just before slashing its dividend. The reason I went with ENB is because management never failed their shareholders.
joesmith323 profile picture
I think the article could benefit from a close reading for grammatical errors.

I bought 200 ENB this morning after reading Dividend Sensei's article and before reading this article.
The Dividend Guy profile picture
Sorry Joe,
I'm French Canadian and I have all my articles edited. For some reasons, there are a few grammar errors here and there. I do my best to keep them to a minimum.
Daniel.Cluley profile picture
I like your articles Dividend Guy, and I like your philosophy. Grammatical errors have not been noticed on my viewing. Although it is important for overall integrity of a written piece, I think viewers should take it into context with the general quality of the article and take into account that perhaps the English language is not the author's first means of communication.

Thank you for your thoughts and I appreciate your written words.
PipelineDancer profile picture
You know who should hire professional proofreaders/editors?

Seeking Alpha. They absolutely make enough to do so.

There should be almost no grammatical errors or spelling errors in any piece released. Further, every symbol should be checked against the company name mentioned, another source of frequent errors.
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