Enbridge Income Fund Inc. (TSX:ENF) is a holding company whose portfolio is made up of energy infrastructure assets. It is involved in the transportation, storage, and generation of energy through its liquids transportation and storage assets. Although the company has a variety of assets, including wind and solar farms, it is still very much a pipeline in that 80% of its cash flows provided by operating activities come from its Canadian liquids asset base.
The company’s share price has taken quite a hit over the past year, losing about 20% in value, and is currently trading near 52-week lows. Despite consistent year-over-year growth in revenues and earnings, it is currently trading at levels not seen in years. The end result is a quality company trading for bargain-basement prices with an attractive and sustainable yield of approximately 8%.
Why is it considered undervalued?
The company is currently trading below its historical P/E average of 16.4, and with a P/B of 0.9, it is trading below book value. Likewise, its P/E, P/B, and P/S are all significantly below industry averages.
The company also meets all the stock-selection criteria for the defensive investor set forth by Benjamin Graham, the “father of value investing.”
What about the “Graham Number,” or the high end of the price range an investor should pay for the stock?
The company appears to be selling at a great price, as it’s trading significantly below its Graham Number of $38, implying upside of approximately 38%.
Not only is Enbridge Income Fund attractively valued, but it is also a Canadian dividend all-star, having raised dividends for seven consecutive years. Since its dividend-growth streak began, the company has consistently raised dividends by double digits, and investors can expect this trend to continue, as the company’s outlook points to sustained 10% dividend growth through 2019.
The company’s high yield is also one of the safest on the market, as cash flows are 99% underpinned by long-term contracts, and 96% of the company’s credit exposure come from investment grade or security-received customers.
Investors should act quickly, as the company is oversold, and it won’t stay this way for long. This past week, its relative strength index dipped into oversold and undervalued territory, indicating that the company is primed for a reversal to the upside.
At current levels, Enbridge Income Fund is a buy for both income and value investors. Income investors would be hard pressed to find a safer starting yield as high as the current 8% yield to go along with double-digit dividend growth.
In a market that has seen valuations skyrocket in recent years, Enbridge Income Fund also provides a great entry point for value investors. Take advantage of this great investment opportunity.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Mat Litalien has no position in the companies mentioned.