How can a company with impressive annual growth in dividends, revenue and net earnings lose value?
That’s exactly what has happened to Enbridge Inc., Canada’s biggest pipeline company.
Enbridge shares have lost 25 per cent since the beginning of the year to a recent $38.86.
This has been a widows and orphans holding for years. Dividends have grown 11 per cent a year since 2015. Revenues grew 7.2 per cent last year. Net income doubled last year, thanks to lower commodity prices.
Enbridge not only transports one-quarter of all the oil moved in North America and 20 per cent of the natural gas moved in North America, it operates the third largest utility in North America as well as a growing 20 megawatt renewable energy division.
Future projects involve eight main areas from liquid natural gas to pipeline extension to renewable energy with a focus on offshore wind in France.
The renewable energy division has diversified with investments in renewable natural gas, compressed natural gas and hydrogen energy as well as geothermal, recharging stations and biogas.
The natural gas utility serves Ontario and Quebec with 3.8 million customers.
Current dividend yield is a whopping 8.3 per cent with no sign of a need for reduction. Most analysts shy away from companies with dividends over six per cent. That high a payout is usually an indication the dividend is not sustainable and unstable. Few worry about this dividend.
So why the loss of nearly $26 billion in market value since New Year’s Day?
Three main reasons:
First, being associated with the fossil fuel industry has kept investors away. Oil prices have been in the toilet for six years. Numerous large investors such as the Norwegian oil-fueled national investment fund Statoil have spurned oil and gas investments.
Second, the continuing difficulties getting permission to twin Line Six into the United States have provided a steady flow of bad publicity to this critical project.
The Line Six project is critical to move oil to the U.S. market but not that critical to Enbridge future fortunes.
Third, continuing difficulties getting U.S. permits for the Line Three replacement under the Straits of Mackinaw from Minnesota grow the streak of bad publicity.
To regain the $26 billion in market value lost during this last nine months will require the oil industry to see prices some $10 a barrel north of the current $40 US. Increased cash flow will attract increased investor attention.
Approval and completion of Line Three and Line Six would help share price and investor sentiment.
Until then, investors need loads of patience while they collect the handsome annual 8.5 per cent dividend.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
