Enbridge (Symbol-ENB)..are we getting close to a buy???

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AltaRed
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by AltaRed »

Details worthy of posting https://www.enbridge.com/media-center/n ... &year=2017

Not really impressed with minimal improvement of Debt/ETIBDA ratio only moving to 4.5 by 2020. Should be diverting more of that dividend growth to debt repayment, but corporations are still drunk with availability of cheap debt.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by StuBee »

Thanks Altared.

All in all the document that you linked to is fairly reassuring and appears fairly realistic (though I am not an investment analyst). I appreciate the fact that they want to focus on the "regulated" part of their buisness and that they have identified 10B$ of potential (non-core) asset sales.

What would be a more appropriate debt/EBITDA?
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by JaydoubleU »

Looks like Shakespeare nailed it,
Identified $10 billion of non-core assets and intend to sell or monetize a minimum of $3 billion in 2018
Among all the noise and whistles, I thought this was the key, and some new equity. But the dividend growth is clearer-->10% for 2018. What's wrong with that? I'm a strong hold and would be a buyer if I didn't already have so much.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by AltaRed »

I would think in the order of 3 would be way more ideal, perhaps 3.5 max. PPL is about 3.5. One source of discussion: https://www.readyratios.com/reference/d ... ratio.html

That said, they seem intent (and capable) to stick handle down the middle between balance sheet concerns and dividend growth rate. I am not concerned about their outlook, I'd just prefer to see a higher rate of debt repayment over dividend growth.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by JaydoubleU »

I am not concerned about their outlook, I'd just prefer to see a higher rate of debt repayment over dividend growth.
Agree. But as you so aptly put it, they need to stick handle between the two. Given their record, their enormous size and market dominance, I am inclined to give them (management) the benefit of the doubt. They'll navigate this.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by jay »

StuBee wrote: 29 Nov 2017 17:15 Enbridge has just announced a 10% increase to its dividend (from the current 0.61$ to 0.671$...exactly 10%). As recently as end of September they guided to a range of 10-12% until at least 2020. Well now they have reduced this number to 10%... Furthermore, 1.5B$ of additional common are being added to the market... more dilution.

I am content with this increase. However this news adds to my conviction that ENB's future is not as rosy as its past. I also fear that downward risk on this company is not yet over...

It will be interesting to see the markets reeaction tomorrow.
So far the market likes it. Up 5% in US premarket.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by AltaRed »

Indeed they do, at least this morning.... which I think was to be expected given management said 2 positive things, i.e. repair balance sheet in a variety of ways (although slower than I would like) and a dividend boost. I think it's the latter one that investors the last 5 years in particular are focused on.

The market is a strange animal though. TD had the opposite reaction this morning with a slight miss.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by bill »

Was thinking yesterday about making a tax-loss sale in ENB next week... What happened today is exactly why I was hesitating.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by StuBee »

I am rather intrigued by a catchy title concerning Enbridge on the Globeinvestor Home page. To the effect that ENB has no buisness paying a dividend!!!

The article is behind the paywall. Is anyone able to give a rough summary of its conclusion?
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by FinEcon »

StuBee wrote: 03 Dec 2017 19:23 I am rather intrigued by a catchy title concerning Enbridge on the Globeinvestor Home page. To the effect that ENB has no buigoing to suffer sness paying a dividend!!!

The article is behind the paywall. Is anyone able to give a rough summary of its conclusion?
With respect to your question the summary is the accounting does not reflect economic reality in the sense that ENB is over/under reporting growth/maintenance capex and has been doing so for years. The author then uses the roughest form of FCF analysis to posit that ENB is over-leveraged and heavily reliant on cheap financing.

Anyone with a decent sized position should probably subscribe the G&M for the cheap 4 week trial and read the article in full for themselves. For concentrated porfolios, unless you have done enough work on ENB to be confident it's not going to suffer a Kinder Morgan episode, your homework starts now. Or just ostrich it!
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by StuBee »

Thank-you FinEcon
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by ig17 »

I can't access the article, but based on FinEcon's summary, it sounds similar to the argument made by a short-seller in this BNN video:

‘This makes no sense’: Money manager blasts Enbridge’s strategic update
https://www.bnn.ca/video/this-makes-no- ... te~1273776

No position.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by AltaRed »

I agree ENB is highly leveraged AND obviously counting on cheap financing to generate needed cash flow. The flaw in the analysis is that much of ENB's business is regulated and much of the increasing debt financing costs, i.e. interest, can be passed on to customers when they make annual or bi-annual applications to NEB and/or Utility Boards (always a year or so of lag factor, but much of it can be passed through). Until they price themselves out of the market and shippers/customers look for alternatives.

Added: If they didn't have this pass through fallback, I suspect many institutional investors would exit.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by Shakespeare »

The summary from the G&M article:
Enbridge, in my view, simply doesn't have the cash-flow profile to be an income investment. Yet it will get away with it as long as Canadian investors keep buying the stock it repeatedly issues, and lending it the money it needs to prop up its model. Enbridge bills itself as "an investment you can trust." The Canadian marketplace continues to agree, whether the numbers make sense or not.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by IdOp »

I'm not a G&M subscriber, but am able to access the article in full with the lynx browser (text-based). This is the link I followed to the article. I'm not sure but perhaps it could have to do with cookies? Lynx doesn't save cookies from one session to the next, so going to G&M with it "fresh" maybe lets you read a limited number of articles. Perhaps clearing some cookies would let people in? Just speculating in case it helps someone.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by FinEcon »

ig17 wrote: 03 Dec 2017 20:52 I can't access the article, but based on FinEcon's summary, it sounds similar to the argument made by a short-seller in this BNN video:

‘This makes no sense’: Money manager blasts Enbridge’s strategic update
https://www.bnn.ca/video/this-makes-no- ... te~1273776

No position.
Yes, that video will get the reader the same thesis as the article, anyone with a position should watch it. Hopefully the article link IdOp posted works for you guys because it has the numerical summary of the claims.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by gobsmack »

FinEcon wrote: 03 Dec 2017 20:46 With respect to your question the summary is the accounting does not reflect economic reality in the sense that ENB is over/under reporting growth/maintenance capex and has been doing so for years. The author then uses the roughest form of FCF analysis to posit that ENB is over-leveraged and heavily reliant on cheap financing.
The author also recognizes that using the roughest form of FCF analysis may not be entirely fair. But using this metric, the author concludes that ENB should have been posting negative FCF for many years. I wish he had used the same metric to compare the numbers against other players in the sector like TRP.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by JaydoubleU »

I haven't read the article, but I can guess. Isn't it the old EPS vs. AFFO argument? By this measure, most utilities are paying out more than they earn, but somehow, they are getting away with it. ENB, according to its website, has been paying dividends for 64 years, and it is widely recognized as a core stock for any dividend growth portfolio, as is TRP. So why the fear? And, as gobsmack says, why isn't the analysis extended to the entire utility/midstream sector?
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by Taggart »

Here's the article in Globeadvisor:

The cracks in the Enbridge dividend story

Monday, December 4, 2017
This company has little business paying a dividend in the first place
DAVID MILSTEAD
Special to The Globe and Mail
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by Taggart »

A short blurb about what I had to say about Enbridge back in June 2014.

http://www.financialwisdomforum.org/for ... 72#p528272

Since then, nothing much has changed.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by JaydoubleU »

Great job, Taggart. I shall try and look more often to globeadvisor for restricted globe articles.

I spent some time looking at morningstar for any significant insider buying or selling. Not much really to see; the usual institutional trading. Sentry has been a significant buyer this year; Fidelity seems to be selling.

http://quote.morningstar.ca/Quicktakes/ ... ture=en-CA

Anyone here rushing to sell ENB because the dividend story is cracking?
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by AltaRed »

JaydoubleU wrote: 04 Dec 2017 12:44 Anyone here rushing to sell ENB because the dividend story is cracking?
No, but I won't be buying any more of their unsecured term notes (mine expires in a year or two) and will dump the one preferred I have when I see a bounce. ENB's prefs are yielding higher in the secondary market than their competitors, notably TRP. I will keep my common holding well within my portfolio cap of 5% and probably half that as I slowly sell down assets to supplement cash flow.

As FWF readers know, I've been harping about ENB for some time to get their debt down and more recently to cut their dividend growth story. Trouble is, they are caught in a wedgie now. They need to follow through on their dividend growth story to keep their common share price up, so that they can continue to go to the market for yet more cheap equity (common and preferred) to fund growth. You'd think it was behaving like an income trust of old. ENB has lost flexibility with their balance sheet and somehow they are going to have to thread this needle carefully going forward.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by jay »

AltaRed wrote: 04 Dec 2017 13:21
JaydoubleU wrote: 04 Dec 2017 12:44 Anyone here rushing to sell ENB because the dividend story is cracking?
No, but I won't be buying any more of their unsecured term notes (mine expires in a year or two) and will dump the one preferred I have when I see a bounce. ENB's prefs are yielding higher in the secondary market than their competitors, notably TRP. I will keep my common holding well within my portfolio cap of 5% and probably half that as I slowly sell down assets to supplement cash flow.

As FWF readers know, I've been harping about ENB for some time to get their debt down and more recently to cut their dividend growth story. Trouble is, they are caught in a wedgie now. They need to follow through on their dividend growth story to keep their common share price up, so that they can continue to go to the market for yet more cheap equity (common and preferred) to fund growth. You'd think it was behaving like an income trust of old. ENB has lost flexibility with their balance sheet and somehow they are going to have to thread this needle carefully going forward.
I didn't feel comfortable holding an overweight position in ENB given their recent news, so I sold half at $49.5. Note thought that my ACB is $47.5 as I only started building this position early last year, so I wasn't sitting on a lot of profits and that made the decision easier. I wonder how many would hang on to their shares if they didn't have to worry about paying the taxman. I am not sure I would've have sold any.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by StuBee »

I have bit the bullet a few times and sold off over 1/2 of my holdings. The last time was in 2016 and I mitigated the tax hit (partially) by selling a loser.
My MTR now is about 40% and I have no more losers to sell. My ACB on ENB is around 7$.

I would like to sell but I am very reluctant of giving over (to the taxman) a significant chunk of dividend earning capital.

I am mulling over the idea of selling a loser in my spouses account and (by means of an identical purchase) transfering her loss to me and then selling off some of my ENB. But this will have to wait until 2018 (so that the CG and the CL will happen in the same year).

I am willing to be patient because the position represents "only" 5% of total portfolio (it was 15%...) and not all of the arguments swirlling around ENB are negative.
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Re: Enbridge (Symbol-ENB)..are we getting close to a buy???

Post by AltaRed »

I think it is reasonable to keep a 'reasonable' position in ENB. They will sort things out but I wouldn't go overweight.
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