Enbridge Inc. (TSX:ENB)(NYSE:ENB) is Canada’s largest pipeline company.
After a rise of more than 20% in 2016, Enbridge’s share price has been falling since the beginning of this year. It is now trading very near its 52-week low of $49.61.
A drop in price can sometimes be a great opportunity to buy. This might well be the case for Enbridge, which has big projects in its pipeline.
Weak Q1 2017, but good full-year results expected
On May 11, Enbridge reported a lower than expected profit for its first quarter 2017. Earnings were $638 million, or $0.54 per share, down 47% from the same quarter last year.
The drop came from unusual and non-recurring factors, including the timing of the closing of its $37 billion Spectra Energy Corp. takeover, the impact of a lower exchange rate, and warmer than normal weather on gas distribution franchises, and the selling of assets in 2016 to strengthen its balance sheet.
Excluding a $416 million derivative gain and other one-time items, adjusted profit was $0.57 per share. Analysts were expecting a $0.62 per share adjusted profit.
However, Enbridge expects its profits to jump for the year following its purchase of Spectra, which was completed on February 27. This merger created the largest energy infrastructure company in North America. Pipeline companies are pressured to merge as they have to deal with overcapacity and sliding tariffs.
Enbridge is forecasting an adjusted profit before interest and taxes of $7.2-7.6 billion in 2017, much higher than the $4.7 billion it earned last year.
The energy-delivery company is focusing on its investments in the European offshore business for now, but the door is open for new acquisitions.
Enbridge will begin phased construction of the Canadian portion of its Line 3 pipeline project on August 1, even though the American portion is still awaiting regulatory approval in Minnesota, where it faces determined opposition.
The $8.4 billion project to replace the aging 1,660-kilometre Line 3 with new pipe is expected to restore 375,000 barrels per day of Canadian crude oil-delivery capacity to Superior, Wisconsin. This is the largest project Enbridge has ever undertaken.
High dividend yield and high earnings growth expected
On May 4, Enbridge declared a quarterly dividend of $0.61 per share, which has been paid on June 1. The declared dividend represents an increase of 4.6% from the previous dividend, which was $0.583 per share.
The company had already increased its quarterly dividend earlier this year by 10% from $0.53 per share to $0.583 per share. Those two back-to-back increases represent almost a 15% increase over the prevailing quarterly rate in 2016.
Enbridge now has a dividend yield of more than 4.7%, which will attract investors seeking high dividends.
Enbridge should experience a very high earnings growth in the near future. Indeed, earnings per share are estimated to grow between 130% and 183% in the next three years, which implies a rise of $1.21 per year on average. Enbridge is well positioned to continue raising its dividend in the years to come.
A P/E of 44.6 and a predicted earnings growth of 85.2% give Enbridge an extremely low PEG ratio of 0.5. This means that Enbridge’s stock has a very good value given its current price.
Investors looking for growth and a high dividend yield will be satisfied by investing in Enbridge. There is some volatility that is inherent to the energy sector, but with patience, investors are going to be well rewarded.
