Enbridge Inc. (ENB) is a value stock investors should consider as a long-term investment. It has significantly de-leveraged, it offers an attractive dividend yield, and it has promising long-term prospects.
- ENB recently released Q4 and FY2018 results and provided guidance for FY2019 and FY2020.
- The company has made considerable progress in deleveraging its balance sheet within the past year.
- ENB has now revised lower its long-term leverage target range to 4.5xs with the plan showing that ENB should come down to ~4.3xs after Line 3 is completed.
- Moody’s upgraded ENB’s senior unsecured long-term debt rating from Baa3 to Baa2 in January 2019. This new rating is now one notch below that assigned by S&P Global Ratings.
- In November 2018, ENB terminated its DRIP because it had made substantial progress on its funding and asset sales plan thus allowing it to meet any remaining equity requirement for the balance of its currently secured growth program.
- In December 2018, ENB announced a ~10% increase to its quarterly dividend ($0.738 from $0.671) and a similar increase is projected for FY2020; the dividend has grown at an average compound annual growth rate of 12.1% over the past 20 years.
All dollar values expressed in this article are in CDN dollars unless otherwise noted.
In my August 5, 2017 article for subscribers I disclosed that I had initiated a 400 share position in Enbridge Inc. (ENB) for the FFJ Portfolio. I initiated this position despite its structure being difficult to understand and a considerable amount of leverage being employed. I did this because I liked that ENB operates in a highly regulated industry which results in significant barriers to entry; I view it much like a toll road.
I certainly didn’t like ENB’s degree of leverage but I also viewed this high degree of leverage as another barrier to entry.
Fast forward to my August 4, 2018 article and I indicated ENB had taken steps to address my concerns regarding its leverage. I liked that that ENB had a renewed focus on the low risk pipeline and utility businesses and the following priorities:
- the strengthening of credit metrics as industry leading growth capital spend moderates and new projects generate significant EBITDA;
- long-term Consolidated Debt to EBITDA target of 5.0x by end of 2018;
- possible further balance sheet strengthening from additional asset sale proceeds.
I then wrote this November 3, 2018 article in which I stated that by carrying out its strategic priorities many ENB shareholders, who had become frustrated with the performance of their ENB investment, would be rewarded if they just remained patient.
Following the integration of Spectra Energy, ENB laid out the following strategic initiatives at the beginning of FY2018.
- deliver strong results for the first full year after the deal;
- move to a pure pipeline-utility business model because that is where ENB excels;
- sell non-core assets and accelerating deleveraging;
- streamline the business, drive efficiency, and simplify the corporate structure;
- execute the secured capital program which was key to growing cash flow;
- replenish secured growth beyond 2020.
If we now look at ENB’s scorecard for FY2018 we see that it has achieved what it said it would do…and more.
This image shows the extent to which ENB’s adjusted earnings before interest, taxes, depreciation and amortization, distributable cash flow, and adjusted earnings improved relative to FY2017 results.
Look at pages 6 – 10 of this presentation to see the extent to which ENB performed on its other 5 strategic initiatives.
I like the direction in which ENB is headed and I have mentioned in my previous articles that I think shareholders will be well rewarded over the long-term. In fact, I have put my money where my mouth is and on the basis of my analysis for the August 4, 2018 article I acquired another 500 shares for the FFJ Portfolio. I then acquired another ~200 shares later in August.
Total ENB shares held as at the time of this article now stands at 1,150 but with ENB’s shares currently trading hands at $47.40, ENB does not fall within my top 30 holdings.
The dividends from these ENB shares are being automatically reinvested through my discount broker to acquire additional ENB shares so my ENB exposure will increase on a quarterly basis without my involvement.
Now that ENB has released its Q4 and FY2018 results on February 15, 2019 I am taking this opportunity to quickly review the company to determine whether I should make another lump sum purchase. (cont'd.)
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Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
Disclosure: I am long ENB, T, BEP, BPY, BIP, BCE, TOT, and CM.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.