Enbridge Income Fund Holdings (Symbol-ENF)

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JaydoubleU
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by JaydoubleU »

I would not be surprised to see ENF outperform ENB in the relatively short term, e.g. 5 years.
The compounded 5-year total return for the two is as follows:

ENB: 25.4% (5 yr average dividend growth, 13.6%)
ENF: 26.5% (5 yr average dividend growth, 3.6%)

http://www.financialpost.com/markets/da ... rowth.html

ENF wins. Judging by the difference in dividend growth, however, this shouldn't be so. I imagine investors five years ago were attracted to the significantly higher yield and bid up the price of ENF. (No doubt these stats don't take into account the latest 12% dividend increase. When it is factored in, the dividend growth numbers will be a little closer. ENB should outperform in the long term simply on the basis of stronger dividend growth.)
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by scomac »

JaydoubleU wrote:(No doubt these stats don't take into account the latest 12% dividend increase. When it is factored in, the dividend growth numbers will be a little closer. ENB should outperform in the long term simply on the basis of stronger dividend growth.)
Not really. When you factor in the latest dividend increase that brings the 5 yr. compounded growth of the dividend to ~5.6%. That's still a long way short of what ENB has achieved. That said, a 5%+ growth rate attached to a 5%+ dividend makes for a pretty compelling investment especially if you can buy it at a fair price.

I suppose that's what has attracted me to take a bit more of a value focus with my Canadian picks. It isn't quite as dependent upon the future playing out like the past as you have made your decision based upon what you must pay for what you get right now.
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JaydoubleU
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by JaydoubleU »

JaydoubleU wrote:(No doubt these stats don't take into account the latest 12% dividend increase. When it is factored in, the dividend growth numbers will be a little closer. ENB should outperform in the long term simply on the basis of stronger dividend growth.)



Not really. When you factor in the latest dividend increase that brings the 5 yr. compounded growth of the dividend to ~5.6%. That's still a long way short of what ENB has achieved. That said, a 5%+ growth rate attached to a 5%+ dividend makes for a pretty compelling investment especially if you can buy it at a fair price.

I suppose that's what has attracted me to take a bit more of a value focus with my Canadian picks. It isn't quite as dependent upon the future playing out like the past as you have made your decision based upon what you must pay for what you get right now.
Well, I put "should" in italics to suggest that ENB would only outperform in theory. But true enough, the price paid for the stock is the most important variable. We did well to grab ENF last year when it was languishing for whatever reason. I was attracted to the valuation, not to the expectation that the investment would return 25% compounded over 5 years.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Arby »

Can somebody provide additional explanation on the concept of drop-downs. From what I understand, the mother company (ENB) needed cash for new investment opportunities, so it sells some of it's low growth assets to it's subsidiary (ENF). Is there an analysis on how long it will take for ENB's new investments to recoup the lost income from the sale of the drop-down assets? How is the price determined for the drop-down assets? Is the drop-down of assets a regular ongoing happening, or does it only happen if the mother company needs cash. Any other general info on the concept of drop-downs would be appreciated.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Arby »

No response to my previous post on drop-downs, so I'm forced to do my own thinking (which often leads to trouble).

I expect the drop-down is done only if there is some benefit to the drop-er (ENB). Hopefully there is also some benefit to the drop-ee (ENF), but this is not certain, since it's an insider transaction between related companies. I assume the drop-er would be required to get the highest possible price for the drop-down assets. If ENB could get a better price from an outside buyer, then why wouldn't they sell the drop-down assets to the outside buyer rather than ENF? So ENF may have paid an inflated price for the drop-down assets. Apparently the market thinks so, since ENF share price dropped 10% after the deal was announced. Given the opacity of these insider drop-down deals, I think I'd rather own the drop-er (ENB) than the drop-ee (ENF), as I'm more confident ENB will be the main beneficiary of these drop-down transactions.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by AltaRed »

I would generally agree with that assessment. I don't like non-arms length deals nor do I know how to evaluate them.

That said, the buyers of ENF are likely looking for more 'stability' and income (yield) [aka a Bell Aliant] than what may happen with ENB. So it increases the pool of stock buyers. The two parts may actually be greater than the whole.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Shakespeare »

I think a so-called "independent evaluation" is needed on the price, but paid-for opinions have a tendency to be what the payer wants.

That's one big reason I am more comfortable with the parent in that situation.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by scomac »

Isn't this just another paper transaction? Money doesn't really change hands other than at the level of the secondary offerring. ENB can value an asset at a price they deem attractive (to themselves) and then move in down to the subsidiary as a de facto inkind transaction and then pocket the cash raised from the share offering in exchange. The share price of ENF dropped because the secondary offering was priced at $30.35/share, so the market moves to the clearing price in the meantime. It can stay there if the market feels that shareholders have been materially impacted by dilution. This allows ENB to realize a better price for a legacy asset than they can hope to get in the open market while retaining an interest in its income producing potential by being the major shareholder in the subsidiary. It is most likely a superior method of raising capital than a straight share issuance in the parent company.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Shakespeare »

It's a way to use OPM1 to the parent's advantage.


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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Arby »

I listened to ENF's conference call about the drop-down transaction, expecting to get some info on how the transaction will be accretive to ENF. I was surprised that no details were provided, just some fuzzy statements about providing additional cash flow to support future growth. The press release says "the Assets are expected to generate within the Fund cash flow before interest expense of approximately $150 million per year on average over a long term planning horizon." Again very fuzzy. I'd like to know the cash flow AFTER interest expenses, and the IMMEDIATE cash flow benefit (not the "long term planning horizon").
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by scomac »

Webber22 wrote:Under the plan, Enbridge will transfer ownership of the assets, which are valued at $17-billion, into the fund in exchange for a higher equity stake.
Once the deal is completed, Enbridge will own about 90 per cent of EIF and will keep operating the assets
Under the plan, EIF will issue $600-million to $800-million of equity each year

http://www.enbridge.com/~/media/www/Sit ... .pdf?la=en
Gad!
*Somewhere between $2.4B and $3.2B in new equity over several tranches
*$4B in exchangeable notes from current ENB bondholders
*$2B in commercial paper assumed

How do they float all this and maintain an appetite for it within the market?

Can anyone come up with a comparable from past years for a similar transaction, as in a David buying a Goliath?
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Shakespeare
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Shakespeare »

People will buy it for the dividend.

I have no intention of adding to my 100.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by AltaRed »

I think Shakes has it right. These days, I think ENB believes investors/money managers will buy anything for the yield and it is either do it now to monetize a portion of their mature/regulated assets, or forever lose that window of opportunity. It is a bold and probably brilliant move for them.

ENF may well be worth holding as an income stock once the dust settles on the python digesting the elephant but until the financial metrics settle out and the stock appears priced right, this is not yet a PM or a (former) BA type stock.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Wallace »

Shakespeare wrote:People will buy it for the dividend.
I did. I get a dividend every quarter from ENF and I'm up almost 50% on the price of the stock. The owners of established pipelines are in an enviable position right now. New pipelines simply can't be built. The environmental movement is too powerful. Only strong established companies like TRP and Enbridge have the deep pockets to survive a 20-year fight to build additional lines and they don't really need to hurry. They know they will win in the end.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by JaydoubleU »

No comments on the deal getting done?

http://www.enbridgeincomefund.com/Read- ... id=1960068

The market liked it, but as an ENF investor, I am a little concerned about the company taking on 11.7 BILLION of new debt, and issuing 3 billion of new equity over the next 3-4 years.

The promise of dividend growth, including a 10% raise upon closing in August, somehow feels a bit like a bribe. Any thoughts?
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by AltaRed »

What needs to be said was already said upthread. The deal is good for ENB.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by JaydoubleU »

Rather than take the dividend hikes thread off track, I thought I'd post here:
Dudsy wrote:
Enbridge Income Fund

10% increase with the closing of the Enbridge liquids and renewables assets. "A further 10 percent increase is expected at the beginning of 2016 and each year thereafter through 2019"


Smells to high heaven. Reinforces my opinion of the sliminess of ENB pushing off assets to income hungry investors in their ENF vehicle, who then push up the market price of the small portion of public float...which adds more paper value to ENB... and also allows ENB as the large majority shareholder to strip ENF of cash via increased dividends. Good work if one can get away with it.
It does seem nearly too good to be true. I wonder if Transalta is copying this model with its spin-off yieldco, "Transalta Renewables," in which it continues to be the largest shareholder.

What we haven't seen yet (I don't think) are massive new issues of bonds and equity from ENF to pay for these assets.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by 2 yen »

In case anyone needs a refresher on yieldco's:

http://www.energycapitalist.com/generationyieldco/

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Re: Enbridge Income Fund Holdings (Symbol-ENF)

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2Yen, thanks for the link on YieldCos. It was a good tutorial.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by lacrosse905 »

Just noticed in my TDDI account a message that said Trading in this security has been halted. any info out there on this
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by lacrosse905 »

News is that they just announced a 700 million share offering @32.60, should have checked before I posted above
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by bpither »

Yeah ... and TD marked my ENF holding to zero tonight which is a little unnerving when you open up your account and see a significant drop in your balance without knowing what the fcuk is going on. :roll:

But it's happened before.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by OnlyMyOpinion »

I see so far today that it is down ~5.6% (~$1.92) :(
JaydoubleU
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by JaydoubleU »

Not sure what all the disappointment is about. With the massive drop-down deal, it was already announced that ENF would be issuing debt and equity to pay for it. I think management took advantage of a short-term bounce to secure the best price for the shares. Nothing has changed, only ENF now offers new investors a 5.2% yield---almost 7% better than 5 days ago---which should rise 10% per year for the next 4 years. Not a bad investment, in my view. Current shareholders such as myself do not regret the drop in price; I at any rate see an opportunity to add to the current position.

That said, I wouldn't have minded getting back into the parent ENB a few weeks ago when it traded under $48. It's up around 18% since then.
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Re: Enbridge Income Fund Holdings (Symbol-ENF)

Post by Shakespeare »

Enbridge Income Fund Holdings Inc. Announces $500 Million Common Share Offering
the purchase and distribution to the public of 17,699,000 common shares ("Common Shares") at a price of $28.25 per Common Share (the "Offering Price") for gross proceeds of $499,996,750 (the "Offering").
Glad this thing isn't a core holding, although I have 200 shares.
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