RE:RE:Picking away at ENSIf I had a crystal ball, this would be easy.
The 12.6% yield on ENS is almost 5% higher than the yield on ENB's 7.8%
The 4.8% yield difference represents a 61.5% premium to the ENB yield
If my pricing model that i put together in 15 minutes is correct, the NAV at the end of Tuesday should be $10.34 while the ENS closing share price was $12.11. The $1.77 difference puts the premium at just over 17%.
Is a 17% premium too much to pay for a 61% higher yield?
I dunno.
I think the real answer should be based upon where one thinks the share price of ENB is headed in the longer terms and if the share price will appreciate enough to cover the over payment of dividends in the Split. If the answer is yes, then the Split is the place to invest. If the answer in no, then stay the heck away from the Split as the leverage on a lower share price could eat you alive.
The key to owning a Split fund imo is whether the extra cash you receive from the Split is worth the risk of the leverage of owning a split rather than focusing on the premium.
Before buying ENS, I ended up digging through the ENB 2023 Q2 earnings report and the Investor Deck on the ENB website to see how the acquistion of the 3 pipes that ENB bought from Dominion would affect the ENB cash flow going forward.
From what I can see, ENB has become a jbigger, more focused on gas deliveriers, less Canadian, and more conservative investment as a result of the acquisition.
Basically, ENB has become an even more boring company than it was before. The Dominion acquistion serves ENB's mission perfectly (grow EBITDA at 5% with highly predicatble cash flows).
The street is crapping on ENB because it paid 16.7x expected 2024 EPS for the Dominion assets while Bershire Hathaway only paid 10.8x for the assets it bought in 2020. Buffet did what Buffet does in 2020 by purchasing distressed assets at a bargain basement price.
Did ENB pay too much for the Dominion assets?
The Williams Companies (WNB.N) CEO thinks so, at least for the goals of his company.
From a strictly EPS standpoint, ENB got a bargain in terms of multiples as it paid 16.7x while the shares are trading at 24.2x.
I bought because I think the street has over reacted to the Dominion acquisition. The street obviously liked the overnight offering discount because the 15% green shoe on the $4 billion overnight offering was picked up. I suspect the selling we are seeing is simply a function of the investment dealers blowing out the windfall profit on the green shoe win. The fact that the market got punched in the face today didn't help.
I could be wrong in the short term but I don't see the ENS divi being cut and eventually the market will realize the the guys at ENB are really smart. As I mentioned in an earlier post, a 12.6% yield on my cost base works for me while I wait.