Enbridge Income Fund Holdings

On my other blog I am today writing about the Graham Number or Price...continue...

I do not own this stock Enbridge Income Fund Holdings (TSX-ENF, OTC-EBGUF). I have followed this stock for some time but I have not owned it. I do own Enbridge Inc. (TSX-ENB, NYSE-ENB)

What I hate about this stock is that the financial statements are complex and they make it hard to find things, like EPS, which should be on the income statement. (Actually, in the latest quarterly report it is and I hope it stays there.) Since this fund is wholly invested in the Enbridge Income Fund (EIF), in order to fully investigate this stock you must also investigate the Enbridge Income Fund (EIF). The problem with complexity it is easy to get things wrong.

First I will talk about the dividends. The current dividend yield is 5.76% based on a stock price of $23.17 and dividends of $1.34 per share, annually. This is lower than the 5 year median dividend yield of 8.62%, but all past Income Trust companies have lower dividends yields.

Dividend growth has been at 5.18% per year and 4.59% per year over the past 5 and 10 years. What you have here is a company with good dividend with moderate dividend growth.

The 5 and 10 year total returns for this stock has been very good. The 5 and 10 year total returns are at 26.84% and 16.20% per year over these periods. The dividend portion of this return has been at 8.16% and 6.99% per year over these periods. The capital gain has been at 18.68% and 9.21% per year over these periods.

The Dividend Payout Ratios for this stock is not bad as far as earnings go paying out 83.5% in 2012. However, the DPR for cash flow is very high for 2012 at 110.8%. When looking at the EIF for DPRs, I find that that are still quoting DPRs based on Distributable Income. The statements say that DPR for DI is at 78.9% for 2012. If you look at DPR for EIF based on income, the DPR for 2012 is very high at 175.9%. However, the DPR for cash flow is quite good at 53.6% for 2012.

Looking at book value, the EIF has a negative $17.63 value. This stock has a positive $23.53 value. It is hard to say what the interplay is between these values. Also, Enbridge Inc. own shares in EIF. I always find a negative book value to be a problem.

The other thing I do not like is the debt ratios. For this stock they look very good in 2012 with Liquidity Ratio of 2.57 and a Debt Ratio of 33.65. However, the only think that this stock owns is shares in EIF and its 2012 Liquidity Ratio is 0.91 and its Debt Ratio is 1.21. A Liquidity Ratio of less than 1.00 means that current assets cannot cover currently liabilities. However, for EIF if you add in cash flow after dividends, the Liquidity Ratio is just fine at 1.57.

The 5 year low, median and high median Price/Earnings Ratios for this stock are 13.58, 16.21and 19.05. The current P/E Ratio is 16.55 based on a stock price of $23.17 and 2013 earnings of $1.40. (Note that if you compare the EPS for 2012 and for the year ending in June 2013, EPS has increased by 4.05%. The EPS estimates show the EPS declining by 5.4% in 2013.)

The above would suggest that the stock price is relatively reasonable. However, I think that a P/E Ratio of 16.55 is rather high for a utility stock. Also, I am not sure that "earnings" listed in the statements are true "earnings". This stock only owns units in EIF. I am not at all sure how meaningful stock price tests using Price Sales Ratio or Price/Cash Flow per Share Ratio would be. A test based on dividend yield is also not meaningful as the dividend yield has been decreasing on all old income trust companies.

What I can say is that, so far, shareholders have done well with this stock. There will be a decrease in the dividend yields that shareholders received over the past 5 and 10 years. I personally do not like stocks that are complex to investigate. I do not like investing in stocks that I feel I do not understand.

When I look at analysts' recommendations, I find Buy and Hold recommendations. Most of the recommendations are a Hold, so the consensus recommendation would be a Hold. The 12 month consensus stock price is $25.50. This implies a total return of 15.82% with 5.76% from dividends and 10.06% from capital gains.

See my spreadsheet on Enbridge Income Fund Holdings at hse.htm and my spreadsheet on Enbridge Income Fund at enbif.htm.

Enbridge Income Fund Holdings Inc. is a publicly traded corporation. The Company, through its investment in Enbridge Income Fund, holds high quality, low risk energy infrastructure assets. The Fund's assets include a 50% interest in the Canadian segment of the Alliance Pipeline, a 100% interest in the various pipelines comprising the Saskatchewan System, and interests in more than 400 megawatts of renewable and alternative power generation capacity. Its web site is here Enbridge Income Fund Holdings.

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 or StockTwits.