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Re-deploying funds released from a sale
Re-deploying funds released from a sale
Published Date: 2018-03-22 | Source: Share Picks USA | Author: Bruce Ingram
Re-deploying funds released from the sale of Stanley Black and Decker: Buying Enbridge (ENB)
Enbridge is currently a high dividend yield company, high dividend growth, company that appears to be undervalued. This share may be worth buying.
Enbridge is listed in the Energy sector. The company was founded in 1949 in Canada. The oil industry is broadly broken up into 3 categories:
- Upstream - Oil drilling.
- Midstream - Oil Transportation
- Downstream - Oil Refining etc.
Enbridge is a Midstream Energy Company.
Let me quote their main business activity from their webpage
We operate the world's longest, most sophisticated crude oil and liquids transportation system, with 17,018 miles (27,388 km) of active pipe. We deliver an average of 2.8 million barrels of crude oil each day through our Mainline and Express pipelines, and we transport 28% of the crude oil produced in North America. We're also a North American leader in the gathering, transportation, processing and storage of natural gas. We have an ownership stake in 77,389 miles of gathering lines, 27,403 miles of transmission lines, and 100,632 miles of distribution lines--a total of 205,424 miles of natural gas and NGL pipelines--across North America and the Gulf of Mexico (these totals include the pipeline network of DCP Midstream, a 50-50 joint venture between Enbridge Inc. and Phillips 66, and other joint ventures). We move approximately 23% of all natural gas consumed in the U.S., serving key supply basins and demand markets. We have 11.4 billion cubic feet per day (Bcf/d) of processing capacity, 307 thousand barrels per day (Mbpd) of NGL production, and 437 billion cubic feet (Bcf) of net natural gas storage capacity. We also have an increasing involvement in power transmission.
Enbridge also generates energy from wind, solar, and geothermal sources
Their home page can be found here: https://www.enbridge.com
The business sector that Enbridge operates in, is a very capital-intensive business which makes it difficult to break into. Enbridge has access to billions of dollars of low-cost capital making it difficult for smaller companies to compete. Also, the business is highly regulated. New projects can take in excess of 3 years to get approved. This is another factor that keeps the smaller competitor away.
The nature of Enbridge's business is such that it is not significantly exposed to oil and gas prices. They get paid by the volume of product they transport. They also have very long-term inflation adjusted fixed fee contracts with their customers. Only 4% of their cash flow is exposed to commodity price fluctuations
Over 90% of Enbridge's revenue is derived from large investment grade companies.
Enbridge currently pays a high dividend 6.65%. The company has paid an increasing dividend for 22 years. Enbridge's Dividend Yield is nearly double it 5-year average dividend yield. This is a strong indicator that the share may be undervalued.
ENB's credit rating is currently BBB+. The dividend grew 14% last year and has grown on average 16% over the past 5 years.
Analysts expect Enbridge to have an annual ROR (Rate of Return) of close to 30% up to the end of the year 2020.
Some risks / issues to consider.
Enbridge is a Canadian company therefore their share price is based on the Canadian $. Dividends are paid out in Canadian dollars. Canadian companies have a 25% withholding tax However in South Africa I believe this is claimable from SARS as a foreign Tax credit.
Because of the highly regulated nature of the business, regulatory changes could impact project timelines and therefore projected profits.
Oil spills are another risk which can impact the short-term share price.
Because of the above potential issues, I will limit Enbridge to 2% of my portfolio, selling shares if and when this percentage increases.
Enbridge's current high dividend and forecast growth potential makes it a stock worth researching.
Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research.
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