Friday, March 18, 2016

Enbridge Inc.

Sound bite for Twitter and StockTwits is: Could still be cheap. With long term dividend growth companies, I think that testing the stock price using dividend yield is probably the best. I still do not like the low Liquidity Ratio on this company. See my spreadsheet on Enbridge Inc.

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 to say is that their site is awful. I am rather focused on what I want to find, I know. However, the site is confusing and has unnecessary pages. There was a separate page for each director for no good reason. There was not that much information on any director and no picture. You have to go through a lot of garbage to get what you want. The page looks like Windows 10 so others may find it appealing.

I must admit that I have done well with this stock. My total return is 15.21% per year with the portion of this total return attributable to capital gains at 11.35%T and the portion of this total return attributable to dividends at 3.86%.

I have had this stock for just over 10 years and I have received $9.29 of dividends per share. The percentage of my original cost paid by dividends is 47.6%. I am making a dividend yield of 11.8% on my original purchase and 10.9% on all my shares.

The above is the good news. What I have not liked about this stock and why it took me until 2005 to purchase it was because of the Liquidity Ratio. The Liquidity Ratio for 2015 is 0.70. If you add in cash flow after dividends it is 0.98. If you add back in current debt and cash flow after dividends you get 1.08.

A ratio of less than 1.00 says that current assets cannot cover current liabilities. Desirable ratio is 1.50 and above. A low ratio makes a company vulnerable in bad times. It also says something, but not anything good, about the company when I had to muck around with it so much to get the ratio above 1.00.

This company had an earnings loss in 2015, but it is not expected to reoccur. Analysts expect the EPS to be $2.34 in 2016. This is in contrast to the EPS of $1.37 in 2014. The company gave an Adjusted EPS of $2.20. Part of the reason for the loss is Goodwill impairment, but other costs were up as well in 2015. The Diluted EPS based on comprehensive income is $2.37 for 2015 (and $1.57 for 2014). Looking at Adjusted EPS and comprehensive income shows that analysts might be right about the EPS for 2016.

The 5 year low, median and high median Price/Earnings per Share Ratios are 33.47, 38.65 and 43.82. The corresponding 10 years ratios are a lot lower at 17.95, 20.36 and 22.77. The historical median P/E Ratio 16.66. This tells you that the P/E Ratios have been climbing a lot lately. The current ratio is 21.38 based on a stock $50.03 and 2016 EPS estimate of $2.34. This testing suggests that the stock price might be reasonable, but above the median.

The 5 year P/E Ratios are far too high for a utility. The 10 years ratios are much more reasonable. When ratios are far too high for a stock of a certainly class, you wonder how trustworthy it is basing a stock price on such ratios.

I get a Graham Price of $29.68. The 10 years low, median and high median Price/Graham Price Ratios are 1.49, 1.75 and 1.69. The current P/GP Ratio is 1.69 based on a stock price of $50.03. This stock price testing suggests that the stock price might be relatively reasonable.

The stock price testing based on dividends might be the best test. The current dividend yield is 4.24% based on dividends on $2.12 and a stock price of $50.03. The historical median dividend yield is 3.48%. This yield is some 22% below the current dividend yield. This stock price testing suggests that the stock price relatively reasonable if not relatively cheap.

When I look at analysts' recommendations I find Strong Buy, Buy and Hold. The vast majority of the recommendations are a Buy and the consensus would be a Buy. The 12 month target price is $55.09. This implies a total return of 14.35% with 4.24% from dividends and 10.11% from capital gains based on a current price of $50.03.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and a here.

On my other blog I wrote yesterday about Canadian Banks learn more . The next stock I will write about will be Melcor Developments Inc. (TSX-MRD, OTC-MODVF)...learn more on Monday, March 21, 2016 around 5 pm.

Also, on my book blog I have put a review of the book Rise to Greatness by Conrad Black learn more...

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 Inc.

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.

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