CORRECTIONWhen I looked back at the last ENB ex-dividend date (Nov 12, 2021), I had to add back the dividend to the ENB share price on the ex-dividend date in order to balance my EXPECTED NAV formula to make it equal the ACTUAL NAV.
When I make the adjustment today, ENS is still trading at a discount to its NAV.
What does that mean going forward?
It means that somebody is finally paying attention and confirms my belief that the days of ENS trading at a premium to its NAV are likely over.
What does ENS trading at a discount mean going forward?
Three things:
First, Middlefield isn't going to be going to be raising capital in ENS anytime soon.
Second, ENS shareholders don't have to be ready to get out of the way (ie move to the sidelines) when Middlefield raises money like they did 5 times last year.
Third, without Middlefield raising money which can increase the NAV, ENS shareholders will have to bear the full cost of Middlefield's management and admin fees. As a result, ENB needs to increase in value by about 2.5% per year (2.5% x 1.6 multiplier = 4%) to offset the hidden costs of owning ENS. Given that ENB has guided 5% to 7% growth in its DCF (Distributable Cash Flow), that should allow ENB to continue to raise its dividend and still grow, which will allow it to raise its dividend the following year and so on
The decision to invest in ENS has now become pretty much a no-brainer as long as ENB keeps growing. Given the fact that the market is finally paying attention to the relationship between ENB and ENS, we just have to know when to hit the sidelines in advance of a drop in the ENB share price, which is pretty easy to do because ENB trades in very set patterns.
I expect that the market has already priced in the earnings MISS for ENB and the fact that Al Monaco guided that expectations for growth should be tempered by a decrease in demand (which I don't agree with but what do I know). However, I still epect the ENB share price to drop more in the coming weeks as there are a couple of heavy headwinds in the form of interest rates hikes and a Russian invasion.
IMO, there there is more downside than upside to owning ENS for the next couple of months or until we get a better feel for how the market will react to the headwinds. I'm hoping to get back into ENS in time to catch the April divdend, or perhaps sooner if ENB gets smacked down in a hurry.