Stats updateAs of yesterday's close
ENB = $44.04
ENS = $11.02
Expected NAV = $9.48*
Expected Premium = 16.2%
Notes:
1) I built in a $0.01 discount to the NAV because yesterday was a Monday. The NAV of the common shares (ENS) gets discounted 0.01 each Monday to account for the $0.13 quarterly divi paid to the Preferred shares
2) ENS started trading ex-dividend yesterday but the $0.13 hit to the NAV won't be included in the NAV until the close of business tonight as today is the record date
3) The one day drop in the Premium to the NAV from yesterday will disappear today (which Middlefield will report tomorrow morning at about 11am).
Facts:
ENB announced the acquistion of the 3 Dominion Nat Gas distribution companies on Sept 6th. Two days later, ENB announced that it $4.6 billion equity at $44.70 per share. The ENB share price currently sits at $44.35 (as I write this) which means the buyers of the $4.6 billion bought deal are still a bit under water.
ENB struggled in the second half of October along with the rest of the market
Interepretations:
Until ENB deploys the $4.6 billion to close the Dominion deal "sometime in 2024" which will increase cash flow, the extra 13 million plus shares issues will act as a drag on earnings.
Coupled with a "fearful" market and high interest rates, I don't see a lot of upside to interest rate sensitive companies like ENB. On the other hand, the ENB share price has already been punched in the face to the point that its current yield makes owning ENB a bit of a no-brainer. Owning ENS is just a leverage play on ENB, so any decision about buying ENS has to start with ENB
Is ENS a buy, a sell, or a hold?
I'm closing on a condo at the end of November, so I'm not buying more ENS these days.
If I wasn't cash constrained, I would be chipping away at buying ENS shares on a steady basis as the 14% yield is JUICY. By chipping away, I mean reinvesting dividends or adding as cash flow permits.
I believe that there is less risk in owning ENS versus other Split share offerings on the market because the annual depletion to the ENS NAV due to excessive distributions isn't as much of a problem as it is for other Splits. As time goes on, ENB will likey continue to raise its dividend (28 consecutive annual raises) which will eventually eliminate the depletion of the NAV on a cash flow basis.
IMO, the time to get aggressive with ENS will be when you see the media talking about a potential drop in interest rates. As interest rates drop, those ENS $0.13 monthly distributions will look mighty attractive.