Enbridge (ENB.TO)

Hasn't liked this for a while. It's not a problem with the company as much as it is with the valuation. All utilities had valuations of around 20X earnings. That was because of the dividend yield. This one has a 225 estimate of earnings, and they pay a dividend of 225. They are paying out all their earnings as dividends. On top of that, when they did the recent US acquisition, they really levered up the balance sheet. The Debt to Operating Cash Flow ratios is about 6 or 7 times. There's not much organic growth.

Thinks a lot of people were buying this at around $49, its 52-week lows, which is usually a bad sign when too many people are too complacent. People are concerned about its debt level. They have normally been telegraphing 10%-12% growth, and have backed away from that and are waiting until Dec 12. This is cheap at 17X. Still has very brisk growth, however, they’ve maintained their guidance. Thinks they have lots of funding abilities through drop downs, asset sales, etc. He would be picking away at this right now.

The Dividend went to 5.1%, which is the highest yield in 10 years, given today’s sell off. They missed by about 3 cents. They confirmed the business for the year. It is really just a postponement until the next quarter so he is not worried about the results. He quite likes it. He is surprised at the reaction. If you miss right now, you get punished.

A great company. Numbers came out yesterday, and were a little light compared to what the Street was expecting, so the stock dropped. Made a large acquisition, which is a bad one, and it has to be integrated. That is straining the company a little. Management is very strong and have executed very well. They are good at buying assets cheaply and integrating them.

If interest rates move up and don’t have the growth, these are not going to participate. Chart is showing an overall downtrend, which hasn’t been broken yet. Until it demonstrates more growth potential, he would wait. Once it breaks the downward trend line, it indicates investors are switching their conception.

A utility and a well run company. There is no particular reason to be super negative on this. There will be dividend increases in the future, and has enough expansion going on that you needn’t be concerned. Dividend yield of 5%.

Pipeline infrastructure. Over the last week or 2, it has pulled back significantly, and he hasn’t seen any rhyme or reason for it. The US acquisition of Spectra Energy gives them a viable pass for growth over the next 5-6 years. Pays a good dividend yield.

They seem to be executing fairly well to increase their capital base. They are going to have more sources of income going forward with a target of significant compound growth rate in earnings and dividends over the next 3 to 5 years. Recent setbacks were more of an opportunity than a sign of worst things to come. If they continue executing well he thinks we could see an appreciation in the 20-25% range in the next 5 years.

It is one of the quality companies. The risk is that rates start rising and there is a fair amount of debt on the books. They are professional managers and can handle that kind of debt increase. The issue for them is that in this country we have an anti-pipe attitude. He is worried about the growth on this one. It is well managed although there will be some headwinds on rate rises. He is not in the sector because he does not know where the growth comes from.

He likes this. Feels it is still working through Spectra which they acquired in the US. A lot of stock was exchanged. Expects there has been pressure of US Spectra holders getting Enbridge stock and trying to get out of it, so it’s been trending sideways for a few months. Management said they have a 5-7 year plan of increasing earnings 8%-10%, but increasing dividends 8%-10% per year. If they are able to, this looks like one of the best yield/growth combinations out there, with safety. This is a great entry point.

Was considering this as a Top Pick for tonight’s program. It provides energy infrastructure and accounts for a significant portion of the oil prices between Canada and the US. They have a $25+ billion backlog that they should be able to execute. Doesn’t think there is risk to energy infrastructure companies.

We are in a low interest rate environment, and pipelines are something people would own if they believed we are staying in a low interest rate environment. From 2009 to 2014, there was an enormous boom in production, which meant tolls went up a lot. As they went up, earnings, cash flow and dividends went up, and the multiples that investors were prepared to pay went up. They turned into growth stocks. Then volume growth started to slow down, so the multiple has been compressing. He wouldn’t focus in bond proxies such as this.

The largest pipeline operator in North America. They just acquired a US pipeline and that makes their network that much bigger and more diversified. It yields about 4.7% which is much longer than its long run average. There is a very clearly articulated plan to grow the dividend at 10-12% compound rate of return over the next 4 years. (Analysts’ target: $60.00).

The utility space is a wonderful space in your portfolio. This one has guided for double digit dividend growth going forward. For income, you can’t beat this area. In a diversified portfolio, especially in Canada, you have to own 1 or 2 of these. One thing that worries him is that this is more focused on oil. He would prefer a more regulated utility such as Canadian Utilities (CU-T) or Fortis (FTS-T).

(A Top Pick Oct 12/16. Down 6%.) Hadn’t done as well as expected. It is a pipeline stock and is interest sensitive. Rising interest rates have worked against all interest sensitive stocks. In the last few months, anything energy related had investors backing away, which hit the pipelines. They also have the Line 3 replacement in their backlog, and still have to get Minnesota’s regulatory approval. In a slowly rising rate environment this is quite attractive, and you are getting paid to wait. She would still be a buyer.