
TSE:ENB
(Past Top Pick on July 12, 2017, Down 14%) They've endured a perfect storm: rising interest rates; high debt,; Ottawa disallowed a key tax deduction; and delays on their flagship line 3 expansion running through Minnesota. But he's hopeful. They posted a good qaurter and believes Minnesota will greenlight line 3. This is an epic buying opportunity.
In the U.S., changes in tax law for MLP’s hurt Enbridge’s ability to drop down assets into a more beneficial tax rate. In Canada, the problems of building new pipelines conflict with Enbridge’s planned future infrastructure projects. He is not worried about the dividend yield. The business would have to get a lot worse before it cuts the dividend. However, if the yield gets up to 7%, which will happen if the stock drops another 10%, he thinks the company will have to look at its yield.
He has been negative on the pipelines for a number of years because they took on a lot of debt and increase the dividend only by increasing the payout ratio. He is not ready to step into it here. Rising interest rates will continue to put pressure on the sector. They need to use cash flow to reduce debt to be more sustainable.
What's the relationship between Enbridge and its Income Fund? It's complex. Enbridge owns 90% of the Fund which traditionally trades at a higher multiple. The board will clean up the structure. The equity issues at the fund level will ultimately roll up into Enbridge. It's basically two different ways for them to issue capital for two different purposes.
(A Top Pick June 16/17 - Down 22.7%) Chose it for better growth than its peers and a better valuation on a free cash yield. 2017 was messy with production outages and balance sheet concerns and lately with opposition to their line 3. Kind of a perfect storm here. Still believe they are growing earnings by 12% a year. The balance sheet is high, but they have non-core assets that they can sell.
He follows this closely. It started to break down a while back. The energy market has hit a pipeline roadblock. ENB is overleveraged: $65 billion of debt is overweighing their market cap. He's waiting until they clean up their balance sheet. It's now trading at 52-week lows. Maybe hold this, but honestly he would have sold it by now.
He would stay away given all the problems that the company has. Finance minister is going to make announcements soon but could be disappointments. The yield is very attractive. Debt level high.