Dividend Analysis - Enbridge Inc. (TSE:ENB)
13 June 2007Not wanting to leave my Canadian readers out in the cold, today’s analysis looks at Enbridge Inc which trades on the TSE under the symbol ENB. This stock is a member of the Mergent Canadian Dividend Achievers which means that it has increased its annual regular dividend each of the last 5 years or more.
Note: Enbringe Inc. also trades on the NYSE under the symbol ENB. However, this analysis will be done from the TSE data.
Company Profile:
From Yahoo Finance:
Enbridge, Inc. transports and distributes crude oil and natural gas in North America and internationally. It operates in five segments: Liquids Pipelines, Gas Pipelines, Sponsored Investments, Gas Distribution and Services, and International. The Liquids Pipelines segment operates a common carrier pipeline and feeder pipelines that transport crude oil and other liquid hydrocarbons. The Gas Pipelines segment consists of investments in natural gas pipelines, including the U.S. portion of the Alliance Pipeline, Vector Pipeline, and transmission and gathering pipelines in the Gulf of Mexico. The Sponsored Investments segment comprises investments in Enbridge Energy Partners, L.P. and Enbridge Energy Management, L.L.C, which transports crude oil and other liquid hydrocarbons through common carrier and feeder pipelines; and transports, gathers, processes, and markets natural gas and natural gas liquids in the U.S. This segment also has investments in Enbridge Income Fund, whose operations include a 50% interest in the Canadian portion of the Alliance Pipeline and a crude oil and liquids pipeline and gathering system. The Gas Distribution and Services segment serves residential, commercial, industrial, and transportation customers primarily in central and eastern Ontario. It also involves in the distribution of natural gas in Quebec, New Brunswick, and New York State; natural gas fractionation and extraction business; and offers commodity storage, transport, and supply management services. The International segment invests in energy delivery businesses in Spain and Colombia.
This is a large cap stock with a market capitalization of $12.717B.
Company Fundamentals:
Right off the bat, I see tremendous consistency in the return on equity. Management has been able to produce a 10 year average return on equity of 14.22%; a five year average of 14.20% and last year management delivered 14.07%. Did I say consistent? I wonder what it will be next year.
Looking at the equity growth rate, I don’t see as much consistency. The 10 year average is 11.53% and the 5 year average is 17.51%. However, 2003 and 2004 almost seem like an anomaly with growth rates of 32% and 18%. I think that the 10 year average is more indicative of average equity growth rate.
The earnings per share growth rate has been fairly steady at around 13%. However, it has decreased in the last 2 years to 3.70% and 10%, respectively.
The sales growth rate has been rock solid over the last 4 years at over 25% per year. With sales growth rates increasing at these rates, it makes me wonder why the earnings per share growth rate has not kept up?
Dividend Fundamentals:
Current dividend yield is an impressive 3.38% which is higher than the dividend yield of TSX composite (which currently sits around 2.40%).
The dividend growth rate over the last 4 years has been amazing at close to 20% per year! The four years before those were quite pedestrian at around 6% growth rate.
Of course, it takes cash to pay for those dividends, so let us see how the cash flow growth rate has kept up. Interestingly enough, over the same 4 year period, the cash flow growth rate has been 17%. Not bad.
Historical Dividend Yield:
So how does the current 3.38% dividend yield compare over the last 10 years? The data shows that the average high dividend yield has been 3.02%. And there does not seem to be any major deviations throughout the period so this seems like a reasonable value. So it looks like this stock is currently selling at a discount. In order to get a yield of 3.02%, the stock should be selling at $40.77. At Friday’s close of $36.34, that would be a discount of 10.86%!
Looking at the dividend payout ratio, it has fluctuated wildly from a low of 50% to a high of 76%. But interestingly enough, the payout ratio is at almost the same place it was 10 years ago - in fact, a bit lower - at 66%. This is a fairly high payout ratio.
You can see my calculations here.
Conclusion:
Management has done an impressively consistent job at producing a return on equity of 14% over the last 10 years. Sales growth rates have been very healthy and fairly consistent over the 10 year period. And management has been pushing the dividend growth at very aggressive levels over the last 4 years (raising the payout ratio from 51% to 66%). But management has shown that they are comfortable with this high a payout ratio in the past.
I do not expect dividends to continue growing at this 20% rate. Will they return to their 6% dividend growth rates that were prevalent at the beginning of the 10 year period? Probably not. Sales growth rates have been too strong for that.
However, the current 3.38% is one of the highest yields I have seen from Enbridge in its 10 year history. It would seem that now is a good time to purchase some Enbridge Inc. based on their yield.
Disclosure: I own shares of Enbridge Inc. (TSE:ENB)
Popularity: 17%
Related posts that may interest you:
If you enjoyed this post, make sure to subscribe to my RSS feed.
Email This Post
Loading ...
