Is it a good company at a reasonable price? This is a utility stock that I have owned for sometime and currently I plan to hold on to my current shares. It may not be at a reasonable price at this time. I also have no plans to buy any more of this stock in the future because I own enough of it.
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.
When I was updating my spreadsheet, I noticed the company did better in Revenue than analysts had expected. Analysts expected a 13% increase in revenue to $44,311. However, increase was to $47,071, a 20% increase. EPS was expected to be $2.67 (78% increase) and it came in at $2.87 (94% increase). The Adjusted EPS was expected at $2.65 (9.5% increase) and came in at $2.74 (23% increase).
I have had this stock for some 16 years and I have made a total return of 12.78% per year with 8.06% from capital gains and 4.72% from dividends.
If you had invested in this company in December 2011, $1,028.43 you would have bought 27 shares at $38.09 per share. In December 2021, after 10 years you would have received $604.77 in dividends. The stock would be worth $1,055316. Your total return would have been $1,659.93.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $38.09 | $1,028.43 | 27 | 10 | $604.77 | $1,055.16 | $1,659.93 |
The dividend yields are good with dividend growth moderate. The dividend yield is currently good (5% to 6% ranges) at 6.04%. The 5 year median dividend yield is also good at 6.25%. The 10 year and historical dividend yield is moderate (2% to 4% ranges) at 4.48% and 3.56%. The dividend increases over the past 5 years was 9.52% per year and is at a moderate rate (8% to 14% ranges). The last dividend increase was low at 2.99% and it was for 2022.
The Dividend Payout Ratios (DPR) are too high generally, expect for the DPR for AFFO. The DPR for EPS for 2021 was 116% with 5 year coverage at 145%. These are, of course, too high. The company also has Adjusted EPS, and the DPR for Adj EPS for 2021 was also too high at 122% with 5 year coverage at 118%. Analyst do not see this DPR being below 100% in the near future. As this is a Utility, we also have the DPR for Adjusted Funds from Operations (AFFO). That DPR for 2022 is fine at 67% with 5 year coverage at 66%. The DPR for Free Cash Flow for 2021 is 582% with 5 year coverage at 261%. However, analysts see this being lower in 2022 with a DPR of 81%.
Debt Ratios are mixed, but utilities often have high debt and could get into problems if they have to raise cash at the wrong time. The Long Term Debt/Market Cap Ratio is 0.86. It is fine, but it would be nice if it was lower. The Liquidity Ratio is 0.49 and even if you add in Cash Flow after dividends, we only get to 0.63. Even if you add in the current portion of the Long Term Debt, we just get up to 0.74. The Assets/Current Liabilities Ratio is good at 9.26. The Debt Ratio is good at 1.60. The Leverage and Debt/Equity Ratios are fine at 2.66 and 1.66.
The Total Return per year is shown below for years of 5 to 31 to the end of 2021. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2016 | 5 | 9.52% | -1.12% | -7.11% | 5.99% |
| 2011 | 10 | 13.05% | 5.76% | 0.26% | 5.50% |
| 2006 | 15 | 12.44% | 9.92% | 4.52% | 5.40% |
| 2001 | 20 | 11.94% | 12.09% | 6.67% | 5.42% |
| 1996 | 25 | 10.86% | 14.87% | 8.72% | 6.15% |
| 1991 | 30 | 9.03% | 13.30% | 7.82% | 5.48% |
| 1990 | 31 | 8.72% | 10.59% | 6.23% | 4.35% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 23.03, 30.82 and 35.21. The corresponding 10 year ratios are 24.39, 30.88 and 36.90. The corresponding historical ratios are 11.01, 18.66 and 35.89. The current P/E Ratio is 19.05 based on a stock price of $56.97 and EPS estimate for 2022 of 2.99. The current ratio is below the low of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $41.13. The 10 year low, median, and high median Price/Graham Price Ratios are 1.35, 1.63 and 1.98. The current P/GP Ratio is 1.36 based on a stock price of $56.97. This ratio is between the low and median of the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 2.16. The current P/B Ratio is 2.17 based on a Book Value of $53,079M, Book Value per Share of $26.20 and a stock price of $56.97. The current ratio is 1% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 10.18. the current P/CF Ratio is 9.69 based on a stock price of $56.97, Cash Flow per Share estimate for 2022 of $5.88 and Cash Flow of $11,913M. The current ratio is 5% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 3.56%. The current dividend yield is 6.04% based on a dividend of $3.44 and a stock price of $56.97. The current dividend yield is 156% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median dividend yield of 4.48%. The current dividend yield is 6.04% based on a dividend of $3.44 and a stock price of $56.97. The current dividend yield is 35% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 1.60. The current P/S Ratio is 2.32 based on Revenue estimate for 2022 of $46,491M, Revenue per Share of $24.61 and a stock price of $56.97. The current ratio is 45% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is possibly reasonable, but it is more likely to be expensive. The dividend yield tests show the stock price as cheap, but the P/S Ratio test show the stock price as expensive. It is always wise to take the P/S Ratio test seriously. However, all the other tests show this stock to be in a reasonable range.
When the dividend yield test and P/S Ratio tests say the opposite things there are reasons. For this stock, they are probably paying a higher dividend than they can afford. The real problem is that, although Revenue is growing, Revenue per Share is not. Revenue is growing for the last 5 and 10 years at 6% and 9% per year. However, Revenue per Share is down by 1% and 9% per year over the same time periods. It is important to pay attention to Revenue, because it is Revenue in the end that will push up earnings and cash flow.
Last year I said that the results of stock price testing were that the stock price is probably reasonable. The dividend yield tests say the stock price is cheap, but the P/S Ratio tests says it is expensive. The Dividend Payout Ratios for EPS are too high suggesting the dividend is too high. The P/S Ratios is not passed because Revenue is not expected to recover for a couple of years. The P/S Ratio for 2023 is 1.57 which is very close the current one of 1.54. I also like the P/B Ratio test and this says the stock price is cheap as do all the other tests.
When I look at analysts’ recommendations, I find Strong Buy (9), Buy (6) and Hold (10). The consensus would be a Buy. The 12 months stock price is $56.39. This implies a total return of 5.02% with 6.04% from dividends and 1.02% from capital loss based on a stock price of $56.97.
When I look at analysts’ recommendations last year, I found Strong Buy (9), Buy (12), Hold (3) and Underperform (1). The consensus is a Buy. The 12 month stock price consensus is $51.46. This implies a total return of 20.67% with 13.32% from capital gains and 7.35% from dividends based on a stock price of $45.43. What happened was a stock price more to $56.97 which resulted in a total return of 32.75% with 25.40% from capital gains and 7.35% from dividends.
From the last 4 analysts’ comments on Stock Chase there are two buys and two sells. One analyst thinks they are paying out too much in dividends. Stock Chase gives this stock 5 stars out of 5. Jitendra Parashar on Motley Fool says this is a safe stock to buy in March 2022. Sneha Nahata on Motley Fool says this is a good dividend stock to buy. The company talks about their fourth quarter in a News Release. A Zack article on Yahoo Finance says there is a lot more room for this stock to grow.
Enbridge owns extensive midstream assets that transport hydrocarbons across the U.S. and Canada. Its pipeline network consists of the Canadian Mainline system, regional oil sands pipelines, and natural gas pipelines. The firm has a small renewables portfolio primarily focused on onshore and offshore wind projects. Its web site is here Enbridge Inc.
The last stock I wrote about was about Canadian Tire Corp (TSX-CTC.A, OTC-CDNAF) ... learn more. The next stock I will write about will be TransAlta Corp (TSX-TA, NSYE-TAC) ... learn more on Friday, March 25, 2022 around 5 pm. Tomorrow on my other blog I will write about Richelieu Hardware.... learn more on Thursday, March 24, 2022 around 5 pm.
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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
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