I dumped my ENS at the end of the day In 2021, the price of ENS pretty much ignored the day to day trading of ENB. Basically, the ENS shareholders were content to coast along collecting their 11% yield.
Middlefield took advantage of the somewhat careless and laissez faire attitude of ENS shareholders in 2021 by going to the market 5 times to raise money. Each raise permanently put more money into Middlefield's pockets as Middlefield charges a management fee of 0.075% on all assets under management (Prefs and Common) which comes out of the pockets of ENS shareholders. Every time Middlefield raised money in 2021, the price of ENS dropped about $0.85 (other than in December where ENS shareholders got hit with a double whammy as Omicron caused the market to dip for a short period of time).
A couple of weeks ago, ENS began to trade at a discount instead of a premium like it had been for the past year.
Why the change?
Perhaps the "buyers" of the 5 raises in 2021 were not overly pleased with the ongoing price smack downs created by Middlefield's opportunistic actions. Or maybe the fund grew to a size where the pros finally took the time to look at the company.
The share price of ENB has dropped at least 5% after each ex-dividend date for the past 12 quarters (other than one time when it only dropped 4%). At the beginning of the pandemic, ENB dropped 42% after the ex-dividend date but that is an outlier. However, last quarter, ENB dropped more than 10% as the markets have been pretty volatile.
If anything, I think the markets are going to get more volatile. The supply chain is in worse shape than the media is reporting. Russia is on the verge of invading the Ukraine. Interest rate hike(s) are coming.
Given all of the above, and the fact the ENB is already trading at the consensus 12 month target price by analysts, I see more downside than upside for ENB in the short term. Given that the multiplier effect of ENS is 1.6x versus ENB, I decided that it was prudent to exit ENS today.
If ENB drops 10% or 15% in the next couple of weeks, the multiplier effect on ENS could result in a drop 16% or 24% if the market is efficient.
Will ENS shareholders continue to blindly ignore the deterioration of the ENB share as they have done in the past year after ENB goes ex-dividend? Four of the 5 raises last year occurred because ENS shareholders were oblivious to the deterioration of NAV due to the share price collapse of ENB following ex-dividend dates. The fifth raise happened because ENS shareholders didn't respond to the collapse of the ENB share price in December when Omicron smacked ENB and the rest of the market.
Has the game changed for ENS as we have seen in the past couple of weeks where the price will continue to trade at a discount to the NAV?
Has the market finally realized and reacted to the inefficiency of the pricing of ENS in the past year? If so, the next week or perhaps even a month or two could be difficult for ENS shareholders. Hence, my exit this from ENS this afternoon where I took advantage of increased volume
There is absolutely nothing wrong with buying and holding ENS and collecting the high dividend yield and participating in the steady growth of ENB. What I do involves more work, but it is fun for me. The good thing about the market is that it provides you with rapid feedback to either reward you or teach you another lesson.