Gordon Pape: Enbridge Background: Enbridge Inc. is one of the largest energy infrastructure companies in North America. It operates an extensive network of crude oil, liquids, and natural gas pipelines and is also involved in regulated natural gas distribution utilities and renewable power generation.
Performance: The stock hit a one-year high of $54 in November but then pulled back and has been trading near the $50 level since.
Recent developments: Third quarter results showed a significant improvement over the same period in 2020. Adjusted earnings came in at just under $1.2-billion (59 cents per share) compared to $961-million (48 cents per share) the year before. For the first nine months of the 2021 fiscal year, adjusted earnings were almost $4.2 billion ($2.06 per share), up from $3.8-billion ($1.86 per share) the year before.
Distributable cash flow for the third quarter was $2.29-billion, compared to $2.088-billion in 2020. For the nine months, it was almost $7.6-billion, up from $7.2-billion in 2020.
“The return of energy demand growth to its pre-pandemic trend, coupled with underinvestment in conventional energy and the recent rise in global energy prices, underscores the criticality of affordable, reliable and secure energy supply for consumers and our social well-being,” said CEO Al Monaco. “We believe sustainable development of North America’s significant energy resources is essential to meeting both global energy needs and societal emissions reduction objectives. The energy we deliver is critical to fueling quality of life in North America and globally and this will continue for decades to come.”
On Dec. 31, Enbridge announced the closing of the agreement through which a subsidiary sold its 38.9-per-cent non-operating minority ownership interest in Noverco Inc. to Trencap L.P. for $1.14-billion in cash. Trencap is a consortium led by Caisse de dpt et placement du Qubec.
The company said the sale “will further strengthen our financial flexibility. Proceeds from the sale will be initially used to repay short term borrowings and support Enbridge’s secured capital program.”
Guidance: In December, Enbridge announced financial guidance for the balance of 2021 and for fiscal 2022. Among the highlights:
- Reaffirmed 2021 full year guidance range for adjusted earnings before interest, income taxes and depreciation (EBITDA) of $13.9-billion to $14.3-billion and distributable cash flow (DCF) per share of $4.70 to $5.00.
- Announced 2022 financial guidance for EBITDA of $15.0-billion to $15.6-billion and DCF per share of $5.20 to $5.50, reflecting midpoint growth of 9 per cent and 10 per cent respectively, relative to 2021 guidance.
- 5-7-per-cent average annual DCF per share growth outlook extended through 2024.
- The company approved $1.1-billion of new capital projects adding to its organic growth capital backlog, which is expected to drive significant EBITDA generation through 2024.
- Enbridge entered into an agreement with Capital Power to develop a carbon capture and sequestration hub in Alberta.
Dividend/buybacks: The company will raise its quarterly dividend by three per cent, effective with the March 1 payment. The new rate will be 86 cents per share ($3.44 per share) for a yield of 6.7 per cent at the current price. This marks the 27th straight year that Enbridge has increased its dividend.
The company also announced the approval of a normal course issuer bid to buy back up to 31,062,331 shares of its common stock to an aggregate amount of up to $1.5-billion. That would represent 1.53 per cent of the total shares outstanding.
Outlook: The numbers are trending in the right direction, but the market still is wary, as the high dividend yield shows.
Action now: Buy. The yield is very attractive and appears to be safe.