Wednesday, June 11, 2008

Enbridge Inc

This blog is meant for educational purposes only, and not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional.

The first company I looked at to replace AGF was Enbridge. It is a utility company that is on both the Mergent’s Dividend Achiever and the S&P/TSX Dividend Aristocrat lists. I had taken a small position in this company in July 2005. It seemed to me to be decent stock then. There is nothing like owning a stock to make you take notice of it. I have not done badly in it. According to Quicken I have made just over 10% per year on average since I purchased it.

First, I will mention what I like about this stock. It has good growth in revenue for last 5 years of some 21%. If a firm cannot grow revenue, it cannot grow. It has good growth in dividends, as they have grown by some 10% per year over the last 5 years. There also has been a good growth in the closing price on this stock over the last 5 years of some 16% per year.

And now for the reasons I did not pick to buy more of this stock. Earnings Per Share (EPS) has not been growing much over the last 5 years, as the rate is less than 2% per year. The divergence between the Graham price and the closing price is getting very wide. If I was looking for a value stock, I would want a price near the Graham price. This is probably a dividend paying growth stock, but the divergence in price is a little much for me. The problem, as I see it, is that the stock price is growing a lot quicker than the book value. The book value is shareholder’s value, being the difference between the Assets and Liabilities of the company. Next the accrual ratio is getting high at almost 8%. This could be signaling that the stock price is high or that this company is bulking up its earnings with non-cash items. In any event, it is not good and could indicate that the stock price will fall in the future.

The last item is that the company’s liquidity ratio (assets/debt) is 1.36. I like this ratio to be 1.50 or higher. 1.36 is about normal for this company, but given the other negative factors it concerns me more.

See my spreadsheet at See my website at

Enbridge is focused on three core businesses of crude oil and liquids pipelines, natural gas pipelines, and natural gas distribution. They operate in Canada and US.

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