ENS cash flow shortcut This thread is getting a bit interesting.....SH is not usually a forum where interesting happens
You can do a lot of investigating and number crunching, or you can just skip to the end of the book. I started writing a "book" but nobody cares as we all just want to get to the bottom line.
Take a look at page 7 of: https://middlefield.com/wp-content/uploads/2024/08/ens-semi2024.pdf
If you look at the DISTRIBUTIONS segment, you will notice three lines including: From Net investment Income, From Capital Gains, and From Return of Capital.
The Return of Capital represents how much more ENS shares pay out than they take in for any given period.
When you see the number, your reaction might be "oh sh** " but I hope you will hear me out.
There are a number of reasons that I chose to invest in ENS as a proxy for ENB. I have listed them before and I'm sure you don't want to read them again.
There is one factor that I have only touched upon in the past which helped with my Go/NoGo decision to invest in ENS. That factor is that the Return of Capital factor for ENS is VERY LOW for Splits. Let me repeat that: $0.45 RoC in the first half of 2024 is VERY LOW by industry standards. Many Splits pay out WAY MORE than they should and that is why they end up with Unit NAV's of under $15 which means they don't pay out the common shareholders of the Split. Those Splits are on a one way trip to extinction. The fact that ENS actually breaks down the Distribution honestly (while I believe that other Splits either ignore the breakdown or improperly classify the breakdown) provides number crunching nerds like me with confidence in ENS that I don't have for other Splits.
Two questions should come to mind....well, to my mind at least:
1) Is the overpayment made by ENS to shareholders sustainable?
I believe the answer is Maybe. Up unitl Middlefield increased the divi for the Prefs, the answer was YES. I remain hopeful as long as ENB continues to increase its dividend every year and the market rewards ENB with higher share prices going forward (the Capital Gains portion of the DISTRIBUTIONS line that I provided in the link above) on the expectation of a higher P/E multiple if the company outperforms its peers. If you only learn one thing about ENB it should be that its raison d'etre is to keep increasing dividends every year. To achieve that, ENB has very strict and disciplined investment criteria and its management team is a beast when it comes to performance in regards to assimilating acquistions and CAPEX expenditures on time and on budget.
2) Why is the ENS share price recently started trading at a Discount to the NAV when it has historically traded at a Premium to the NAV?
Occam's Razor suggests that the most likely answer is the simplest answer.
My assumption is that the street has adjusted the share price of ENS from a Premium to a Discount because it feels that the increase in the ENS.PR.A dividend (at the expense of ENS investors) as of June 2024 adds a risk component to the ability of ENS Unit to sustain a NAV of more than $15 so that ENS can receive its monthly divi.
I haven't done so, but I suspect that if you check out the NAV's of the Splits that increased the yield on the their Pref shares in order to compete with higher interest rates, you will discover that a similar pattern of a change where Premiums to NAV have shifted to Discounts.
In other words, the important question is whether the Splits can maintain the higher payouts to the Pref shares for the duration of there 5 years renewals. Some Splits will do better than others and I expect ENS will survive and hopefully thrive.
I suspect the reason the Prefs have jumped up in price across the board for the Splits has been impacted significantly by risk management as opposed to a simple explanation of falling interest rates.
As always, everything that I write is just my best guess. I wish I was smart instead of being so darn pretty.
Thanks for reading if you have made it this far.