Monday, March 30, 2015

Enbridge Inc. 2

On my other blog I am today writing about Dividend Payment Dates continue...

Sound bite for Twitter and StockTwits is: Stock price seems high. On most tests the current stock price seems to be rather high. On a relative basis the stock price seems to have been high since at least 2012. See my spreadsheet at enb.htm.

I own this stock of Enbridge Inc. (TSX-ENB, NYSE-ENB). I first bought this stock in 2005 and then bought more in 2008 and 2009. This stock was on the Dividend Achievers, the Dividend Aristocrats list and also on Mike Higgs' list of Canadian Dividend Growth stocks. Enbridge is considered to be a low risk stock.

The first thing I noticed was the incredible number of options that insiders have. The CEO has some 5.7M options worth at current prices around $340.9M. The CEO has some 1.6M options worth around $96.9M. The company says that it has set aside for options some 60M shares. Currently this number of shares is worth some $3,584M. This is some 7.2% of the outstanding shares. This company is worth some $50B. All stock options granted have strike prices.

In 2014 the outstanding shares were increased by some 3M shares. The book value for these shares was $51M and at the end of 2014 these shares were worth $179M. The 3M shares are only 0.35% of the outstanding shares.

However, in 2013 and 2012 outstanding shares were increased by 0.60% and 0.75% respectively. Generally companies increase the shares by around 0.50% for stock options. The percentage of options is a bit high in 2013 and 2012 but not extraordinarily and the stock options for 2014 were lower.

Insider trading in the past year has $25.3M of insider selling and net insider selling at $25.1M. There is some minor insider buying. This insider selling is just 0.05% of the stock's market cap.

The 5 year low, median and high median Price/Earnings per Share Ratios are 33.47, 38.65 and 43.82. These are considerably higher than the corresponding 10 values of 18.03, 20.68 and 23.43. The 5 year values are high because the last 3 years the P/E Ratios have been high. This has been mostly due to low EPS for 2012 and 2013. To me, the 5 year P/E Ratios is very high for a utility stock.

The current P/E Ratio is 27.19 based on a stock price of 60.90 and 2015 EPS estimate of $2.24. Compared to the 10 year P/E Ratios, this is a rather high one. I think that the 10 year P/E Ratios are more reasonable than the 5 year P/E Ratios. By the way, the historical high P/E Ratio is 30.57 based on a formula that ignores outlier values. By looking at the P/E Ratios, it would seem that the stock price might be relatively expensive.

I get a Graham Price of $27.21. The 10 year low, median and high median Price/Graham Price Ratios are 1.40, 1.61 and 1.82. The current P/GP Ratio is 2.24 based on a stock price of $60.90. This stock price testing would suggest that the stock price is relatively expensive. Do not forget that Benjamin Graham thought that a good stock price was one where the P/GP Ratio was 1.00 or below.

The 10 year Price/Book Value per Share Ratio is 2.82. The current P/B Ratio at 4.14 is some 47% higher. The current P/B Ratio is based on a stock price of $60.90 and current BVPS of $14.69. This stock price testing would suggest that the stock price is relatively expensive.

The 5 year median Dividend Yield is 2.86% and the current Dividend Yield at 3.05% is some 6.9% higher and this is good. You want the current Dividend Yield to be higher the median. However, if you look at historical Dividend Yields the pictures changes.

The historical average Dividend Yield is 4.66% and the historical median Dividend Yield is 3.47%. The current Dividend Yield is some 34% higher than the historical average, but only 12% above the historical median. The historical median is probably more meaningful as a way to test the Dividend Yield. It is only in this category that the current stock price could be characterized as reasonable.

However, there was also a very high dividend hike of almost 33% in the dividends for 2015. This is way above the norm for this stock which normally hikes the dividend by a value closer to 11 or 12%. There could be a case to not do dividend yield testing of the stock price for this company. On the other hand, if you look at projected EPS, it would appear that the company can clearly afford this dividend increase.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. Most of the recommendations are a Buy and this would be the consensus recommendation. The stock price consensus target is $66.60. This implies a total return of 12.41%, with 3.05% from dividends and 9.36% from capital gains.

This article talks about National Energy Board fining Enbridge $264,000 in penalties. This is a company that earned almost $1.2B in 2014. This Motley Fool article by Cameron Conway talks about Enbridge transferring assets to its subsidiary companies. This article in Market Wired talks about analysis reaction to Enbridge's plans to optimize a previously announced expansion of its Regional Oil Sands System.

This is the second of two parts. The first part was posted on Friday, March 27, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

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. Its web site is here Enbridge.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

No comments:

Post a Comment