RE:Globe & Mail ArticleTroubles with SH. There may be some overlap but here's the tail end of the article. GLTA
The first is the relationship of most yieldcos to the energy sector. Even though they may not be directly exposed to fluctuations in the price of oil and natural gas, they are feeling the ripple effect. For pipeline companies like Enbridge Income Fund, investors worry that volumes will be negatively affected, reducing revenue and profits. For renewable energy companies, cheap oil makes the high cost of their green output even less attractive and more dependent on government subsidies.
The second concern is higher interest rates in the U.S. By definition, yieldcos are interest-sensitive - as rates rise their yields become less attractive when compared to ultra-safe U.S. Treasury bonds and the cost of servicing debt rises. The result: a price retreat.
Enbridge Income Fund has seen its share value drop from an all-time high of $44.93 in mid-February to around $27 now - a decline of almost 40 per cent. This is despite the fact the company raised its dividend by 10 per cent twice in the past 12 months. Effective with the January payment, investors will receive 15.55 cents monthly (about $1.87 per year) to yield 6.9 per cent.
The latest financial results showed no sign of weakness. The Fund reported strong third-quarter results with earnings of $36-million (50 cents a share, fully diluted). That compared to $22 million (38 cents per share) for the same period last year. For the first nine months of the fiscal year, the Fund had earnings of $97-million ($1.37 per share), up from $65 million ($1.15 per share) in 2014.
I think the sell-off in yieldcos in general and Enbridge Income in particular has been overdone and that we're looking at a good buying opportunity. Patient investors who want good, dependable cash flow and can handle moderate downside risk may want to ask their financial advisers about this stock.
Wed, 23 Dec 2015 12:53 EST