Enbridge Income Fund 2

This is a stock (TSX-ENF) that I follow, but do not own. I have Enbridge Inc (TSX-ENB) and you would not buy both because Enbridge Inc owns about 40% of the shares of this company. Enbridge Income Fund has just changed to a corporation and has changed its symbol from ENF.UN to ENF. The name has also changed from Enbridge Income Fund Holdings to Enbridge Income Fund.

I looked at the Insider Trading report. Because this stock just changed name and symbol, the insider trading reporting only covers the stock since this change. There has been no insider selling or insider buying since the beginning of the year. However, from looking at stuff on the internet, it looks like there was some insider buying in December. I guess a positive note is that they will maintain the current dividend.

The dividend growth potential of this stock is very good. If they increase future dividends as in the past, a current purchase will get you 8% and 10% yield on a current investment in 5 and 10 years time. However, I really wonder they can keep up the current increases at the past rate of 4.8% per year dividend increases. I worry because they are paying out too high a percentage of the earnings in dividends.

The 5 year median low P/E Ratio is 16 and the 5 year median high P/E is 24. I get a current P/E ratio of 33 based on expected earnings for 2011. Sites that base the P/E on the last 12 months earnings get an even higher one of 54. This would point to quite a high relative current stock price.

The latest stock price I got is $17.60. I get a Graham Price of $8.38 for 2011. Usually the Graham Price for Unit Trusts tends to be low because of lack of increase in book value. However, this stock has reasonable increases in the book value until this year. As of the last quarterly report, the book value dropped some 15%. The current stock price is 110% of the Graham Price. The 7 year median high difference between the stock price and the Graham Price is 66%. So, on a relative basis this points to a high current stock price. Also, 110% difference between the stock price and the Graham Price is the highest this difference has ever been.

The 7 year average Price/Book Value Ratio is 1.53. The current P/B Ratio is 3.07. This also points to a high current relative stock price. The reason the P/B Ratio is so high is because of the recent drop in the Book Value by 15%.

Even the dividend yield does not show a good relative current stock price. The current dividend yield is 6.6% and the 5 year average is 8.7%. So reviewing all the ratios that I look at, the stock price does seem high. So, the next thing to look at is what the analysts are saying.

What the analysts’ recommendation I can find on this stock is Hold, Underperform and Sell. This is all I can find. There are a few analysts, but not a lot following this stock. The consensus recommendation would be an Underperform. (See my site for information on analyst ratings.)

The comments that I find is that the Analysts’ like the Bakken Pipeline Expansion Program and feel it is good for future cash flow for Enbridge Income Fund. However, it is felt that the stock price is too high and taking profits by selling off this stock or some of it would be a current wise move.

The Enbridge Income Fund assets are a 50% interest in the Alliance Canada Pipeline and a 100% interest in Enbridge Pipelines (Saskatchewan) Inc. They also have Green Power assets, which include a 50% interest in NRGreen Power Limited Partnership. NRGreen operates electrical generation facilities using waste heat, and holds interest in three wind power projects in Western Canada. Owners: Just over 40% of the shares are owned by Enbridge Inc. Its web site is here Enbridge Income Fund . See my spreadsheet at enf.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.