By: Patrick
Schulz, AIM student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Enbridge Inc. (NYSE:ENB) transports, generates and distributes
energy throughout Canada and the United States operating through five business
segments: Liquids Pipelines, Gas Distribution, Gas Pipelines, Processing and
Energy Services, Sponsored Investments and Corporate.
• Low commodity prices have
caused Enbridge to struggle for the past few quarters.
• Prime Minister Justin Trudeau
is expected to implement stricter environmental protection laws, creating a
negative effect on some of Enbridge’s projects.
• The Northern Gateway pipeline
project continues to suffer setbacks despite Enbridge’s optimistic outlook in
the long-term.
• Management continues to show
signs of confidence by raising 2016 guidance and increasing their quarterly
dividend.
Key
points: Enbridge Inc. continues to struggle in this low commodity
price environment, as have almost all crude oil and natural gas transportation
and storage stocks. Enbridge Inc. runs
the world’s longest crude oil and liquids transportation system and continues
to develop projects to enhance their performance. Along with these projects, Enbridge Inc. owns
Enbridge Energy Partners (NYSE: EEP), Enbridge Energy Management (NYSE: EEQ)
and Enbridge Income Fund (ENF). Although
the past 12 months have proven to be difficult for energy stocks, Enbridge Inc.
was able to show strong signs of improvement in their 2015 Third Quarter
Report. Their most prominent project,
the Northern Gateway pipeline, continues to face setbacks stemming from
political decisions throughout Canada.
Prime Minister Justin Trudeau,
elected into this position late in 2015, has continued to enforce his
environmental changes, hoping to elevate the need for concern in this
area. Trudeau has a history of concern
for the environment, including fighting against a proposed $100 million zinc
mine, which stems from his master’s degree in Environmental Geography at McGill
University. In late November 2015,
Alberta, Canada adopted new climate change policy goals for companies to reduce
their methane emissions by 45%, adding costs “in the tens or hundreds of
millions of dollars over the next five years”.
The new Canadian government also recently announced an oil-tanker ban along British Columbia’s north coast, which will cause material damage to Enbridge’s Northern Gateway pipeline project. These new environmental changes have slowed Enbridge’s growth and may continue to have negative effects in the near future. With Canada appearing to transform into a more environmentally friendly country, alternative energy resources may play a bigger factor in the Canadian economy, edging out Enbridge’s operations.
The new Canadian government also recently announced an oil-tanker ban along British Columbia’s north coast, which will cause material damage to Enbridge’s Northern Gateway pipeline project. These new environmental changes have slowed Enbridge’s growth and may continue to have negative effects in the near future. With Canada appearing to transform into a more environmentally friendly country, alternative energy resources may play a bigger factor in the Canadian economy, edging out Enbridge’s operations.
If stricter environmental laws
aren’t enough, Enbridge’s Northern Gateway pipeline project has faced several
difficulties over the past several quarters.
Besides the recent oil-tanker ban along British Columbia’s north coast,
the Northern Gateway pipeline project continues to face strong opposition from
environmentalists and First Nations, an indigenous tribe in Canada. To add more difficulties to this project, the
B.C. Supreme Court ruled that the British Columbia’s government “failed to properly
consult First Nations on Northern Gateway pipeline”. Although this project will continue on its’
track, there may be more uprisings from First Nations if they continue to
disapprove of this pipeline project.
In light of all of these
setbacks and headwinds, Enbridge continued their financial success by
increasing their quarterly dividend by 14%, to C$0.53/share, making it 21
consecutive annual increases. In 2015,
Enbridge increased their dividend by 33%, following a 5-year average of
increases of 14% per year. Management
has suggested further dividend increases, around 14-16% through 2019.
What
has the stock done lately?
With oil reaching new 10-year
lows and remaining volatile, Enbridge’s stock has seen declines over the past
few months. However, despite all of
difficulties with commodity prices and headwinds in Canada, Enbridge’s stock
has remained flat over the past month and is starting to show signs of positive
momentum. YTD, Enbridge has turned
positive, albeit only 1%, and during this past week when oil ended the week
positive, so did Enbridge, returning over 10%.
Past
Year Performance: ENB has decreased roughly 33% in value over the
past year due to the significant decreases in oil related commodities. With
management’s continued dividend increases, Enbridge still shows signs of a
positive future. A small rebound in oil
prices will add positive momentum to a struggling energy sector.
1 Year Stock Chart vs. Benchmark from FactSet
Source:
FactSet
My Takeaway
Enbridge has shown signs of strength
during this difficult commodity price environment by continuing their dividend
increases and raising expectations for 2016.
Despite the headwinds they face due to environmental concerns, Enbridge
has placed themselves in prime position to reap the benefits of a more stable,
and possibly higher, oil price environment.
Look for Enbridge to return more wealth to the shareholders and stock
price appreciation throughout 2016.
1 Month Stock Chart from FactSet
Source:
FactSet
