Enbridge (ENB.TO)

This is a great study of being a leader within a group, at a time when the group has been out of favour. In 2009 this was a sector that was generally unloved, but this company has been executing very well. It is a remarkably disciplined business. They look at every potential new project based on return of capital. They had a lot of long-term projects lined up to build. They continue to be that way. He thinks there is a long runway for the energy infrastructure companies, and this company will participate in that.

Preferred Series ‘F’ (Top Pick Nov 22/13, Up 4.70%) He never bought it. He is disappointed in this one. He thinks it is a hold or a buy. It has a fair reset rate.

He is starting to pick away at this, even at these levels, as they have a tremendous amount of growth CapX ahead of them, over $40 billion, which will enable them to increase their dividend and earnings by double-digit rates through to 2017. A very good, sleepy dividend payer. Thinks they will start more meaningfully to drop assets down into its MLP, which should surface some value and that will create long-term growth potential.

Yield of about 2.6%. If and when interest-rates start moving up, will investors start turning away from companies like this? If you own, hang onto it for the time being. Yield might grow by about 8%, which is not bad, but not a huge move going forward.

(Market Call Minute.) So many things going on with this company. So many projects that might, could or should happen. Prefers to get his exposure to pipelines through TransCanada (TRP-T) or Pembina (PPL-T).

Pulled back when they issued equity. Management says they grow 10-12% going forward and there will be dividend growth as well.

Terrific company. Raises its dividend every year. Growing by leaps and bounds. Doing everything right, but the valuation is quite high. He is playing the utility space through Canadian Utilities (CU-T), which has a much cheaper valuation.

A 3-year comparison chart between Enbridge and Royal (RY-T) shows Enbridge had an initial period of outperformance in early 2012, with the spread between the 2 remaining constant mid-2013. In 2014, the chart shows the spread widening. On a 1-year comparison chart, Enbridge is underperforming since March followed by a drop at the beginning of May, which he would blame on some fundamental change.

Thinks this is fully valued. Has been a great growth story for years. Continues to perform fantastically well. As the pipeline business gets more and more complicated from a regulatory and First Nations perspective, these pipes are aging. Maintenance costs are going to increase. The risk is, as we are not able to build new pipes, the old ones sprout more and more leaks.

Has been a beneficiary of people looking for yield. The market is not pricing in the North Gateway pipeline going through and if it does it will be a bonus. Lots of other projects will bring them earnings growth, but he thinks the best is over for them. Payout ratio is good so the dividend is safe.

Short Has had a Short on for about 3 years now. Had completely underestimated the skepticism of this market and how it was looking for a defensive, dividend growth. Trading at almost 25X earnings. They’ve had some really aggressive dividend raises of 5%-10% over the past 3 years. However, with that, they’ve also had capital raises. It makes no sense to him why a company would increase its dividend, and at the same time, go and issue more shares.

Northern Gateway – where do you see it 5 years from now if that pipeline is built? It is not that cheap, but they have 12% growth rate for years to come. He upgraded his target yield. Good dividend growth, but it is pricey. Thinks Northern Gateway will go through and that Obama will approve Keystone XL. These are priced in at this point.

(A Top Pick June 11/13. Up 18.21%.) This has 8%-10% earnings growth over the next 5 years, plus the dividend.

(ENB.PR.D-T) 4% Series D Preferreds. This company has a whole bunch of 4% dividends and a whole bunch of 4.4% dividends, because of where credit spreads have gone. This one will pay you 4% until 2017, when it will reset at +2.37% over the then 5 year Canada. He can see a dividend increase when it comes up for reset.

Has had a big, big run. Well-run company with lots of big growth projects. Well-financed and able to raise money. Wish the environmentalists would let them build the new pipeline so they could take their old ones out of service with all the leaks. Not cheap. If we ever go through an interest-rate shock, it could be bad for these companies that have a high leverage. Paying out 70% of their earnings in dividends now.