E Split Corp T.ENS

ENS trading at a $0.08 Premium to its Real Time NAV

[Obscure1]

As I write this, ENS is trading at $14.81 while ENB is trading at $52.13 The combination produces a Real Time NAV of $14.73 which puts ENS $0.08 above its NAV

The last time ENS traded at a Premium to its NAV was on January 27th, it was the day before ENS traded Ex-Dividend.  Yes, there is a pattern here.

What are the implications of the above?  The price of ENS bumps up artificially just before ENS goes Ex-Dividend as there are investors who want to jump in and grab the Dividend. 

Does it make sense to invest before ENS goes ex-dividend? 

It depends on the investor, but from a math perspective, it doesn't make sense at all. 

Investors that count on the income from dividends may want to jump in.  The problem with this strategy is that the $0.15 increase in the share price in ENS is a temporary and fake measure of the value of ENS. 

ENB is currently down $0.41 today.  In an efficient market, ENS should be down instead of up.  That means anyone buying today is effectively over paying to get the dividend.  That doesn't make sense to anyone that isn't overly hungry for dividends.

When ENB is moving up in price, maybe it kinda makes sense to overpay to receive a ENS dividend  because you expect the share price to recover quickly because of the ENS multiplier effect (leverage).  However, when ENB is expected to move down, paying up to grab a dividend is double troube because you are over paying to get the dividend AND when ENB goes down in price, the multiplier effect (leverage) of ENS will compound the misery.  In the past, the price of ENS has pretty much ignored what was happening to the price of ENB, but I think those days are gone.

I don't know what the market is going to do in the coming days and weeks or even months.  What I do know is that there are a couple of market forces that could really hurt share prices.  . 

The Russia/Ukraine situation is a big unknown.  ENB has a low beta so it will likely go down less than the market if things go badly, but it will still go down, and owning ENS will multiply the pain.  My strategy is: "when in doubt, get out"

Interest rate increases are coming.  Everything that I'm reading tells me that the FED is behind the curve (as usual) and that rates are likely to move higher faster.  That could mean a 50 point bump or maybe even more instead of a 25 point bump.  What I do know is that interest rate increase are never a good thing for the equity market.   

I really like ENB as a company.  I also like ENS as a means of collecting a higher yield than ENB (paid monthly which is a bonus) and ENS provides the ability to leverage ENB without borrowing money to do so. 

However, there are times when it just doesn't make sense to own certain stocks, or any stocks at all.  Until the smoke clears and we have a better feel for the Russia/Ukraine situation and how the world and hence the markets respond, it makes sense to me to be conservative. 

Regardless of the Russia/Ukraine situation, until the market processes the upcoming interest rate hikes, there appears to be more downside than upside to the market in the near future. 

If the equity markets were already down and trading at low multiples, perhaps one could make a case that the negative news has already been built into share prices.  It is easy to forget that the Dow has moved up from the 18,000 level in March 2020 and has moved up from 29,000 before Covid hit.  We are a long way away from February 2020 when the economy was flying and Trump was a shoe-in for relection.   

I'm a retired guy, but that doesn't mean that I have forgotten what I have learned over my life (at least not yet).  I don't have a crystal ball as I smashed the ones that I thought would help out of disappointment. I'm not a financial advisor, so take everything I say (or anything anyone says including financial advisors) with a grain of salt. 

GLTA

[ClydeTower]

Thanks for your perspective... appreciated :-)

[TakingStock]

The mistake you made in your analysis (as we see know with 20/20 hindsight) is that you didn't consider the effect the Ukaine situation would have on the price of oil. When the rice of oil shoots up, as if did, then pipeline and oil stocks also shoot up.