Enbridge (ENB.TO)

It is a solid holding. It is amazingly well managed. They have many opportunities in front of them. They have been accelerating the dividend payouts. Longer term he really likes the growth rate of the company. He likes the drop down deals.

(A Top Pick July 8/14. Up 18.67%.) The projects they have in place are all long-term secure contracts with very good visibility through 2018. Still likes.

Enbridge (ENB-T) or Enbridge Income Fund (ENF-T)? Both of these are dividend payers and energy infrastructure companies, so they are not taking real commodity risks. If he had to choose, he would prefer this one simply because it has such a bigger market cap and is more of a “go to” name for investors, both domestically and globally. Probably the best run pipeline company in the world.

His model price is $36.91, a -35%. You may be buying this for the dividend, but your capital is at risk. If we were to have another deflationary spike and the Fed does not move, and the world goes back into this slow growth funk, this stock could easily go up to $68.

The primary reason it has come back from its high of $65 is because of declining crude oil prices and the potential impact it will have on these infrastructure names. The earnings and cash flow visibility is very high for the next 4-5 years, based on what they have in their backlog. A lot of the projects are all “cost of service”, and there is no commodity price sensitivity. 3.3% dividend yield.

In January 2014, he had only 7% exposure to commodities, basically Potash (POT-T) and this company. Continues to own this one which is a toll taker and one that belongs in the portfolio. Dividend yield of 3.2%.

Wouldn’t worry about the pullback in the stock, it is actually a buying opportunity. There is not a lot being valued on the Northern Gateway project, and that is going to be a very, very good space for them to be involved in. This company is not going to be too dependent on whether oil prices are high or low at this point. An excellent name.

A cash flow story in a low interest rate environment with the dividend that goes up more often than the average company. Because of this, it is fine. He thinks stable dividend payers are getting a little dear, but he doesn’t think interest rates are going to go up that much.

Preferred Series E. This is a rate-reset preferred. In Canada rates have been cut, so the sense is that the company that has issued these preferreds are not going to take you out in 5 years, and will leave you there with a possible lower dividend yield. Wouldn’t dump this while Canada is in kind of a rate dumping mode. At some point in time the cycle will turn and you will have an opportunity.

(Top Pick June 20/14, Down 21.60%) The earnings have come in just fine, perhaps just slightly disappointing. They have initiated a tax arbitrage so they can stream more earnings to their shareholders by moving assets down.

The political environment towards pipelines has not being good. This is an interest rate play, and as investors expect interest rates to go up, this will not be a good area going forward.

If more refining of oil were to take place there, the result still needs to be shipped so it should not hurt ENB-T. This is a multi-decade capital allocation decision and things won’t change overnight. Heavy oil differentials are down to $8. He is tempering his reaction to the election.

Transferring their liquid gas business into their Enbridge Income Fund (ENF-T). Over 5 years, there has been a tremendous growth in liquids. The income fund is really more of a pure yield play, which is why it has done a little bit better. In both cases they are businesses that are tied to yields without a lot of volatility. Very richly valued. He would avoid these areas.

Stock vs. Stock. ENB-T vs. ENF-T. There was movement of assets between ENB-T and ENF-T and you saw that affect valuation. Prefers ENF-T right now.

They are dropping down their Canadian Liquids operation to their Enbridge Income Fund (ENF-T). She doesn’t have all the details. Thinks Enbridge Income Fund is going to have to raise some debt. She really likes management. Very good visibility in their backlog. Have indicated they are going to grow their earnings 10%-12% over the next few years, and their dividend in excess of that.