Enbridge Inc. (TSX:ENB)(NYSE:ENB) released its year-end results last week, which showed a strong performance in 2017, despite a lot of instability in the price of oil. After a disappointing Q3, the company was able to rebound in Q4 with its adjusted earnings beating expectations, as higher volumes propelled Enbridge to a strong finish for the year.
With more than $44 billion in revenue for 2017, the company’s top line was up more than 28% from a year ago, as it saw growth among all of its key segments. The downside is that operating expenses accelerated even more, rising 34% from 2016 and negating the increase in revenue, as operating income of $1.57 billion came in less than the $2.58 billion the company recorded a year ago, despite seeing much less revenue.
However, a big reason for this is that in 2017 Enbridge incurred $4.57 billion in impairment charges compared to just $1.38 billion in the prior year.
Tax recoveries give Enbridge a big boost
Pre-tax earnings for the year of just $569 million were a significant drop off from the $2.45 billion that Enbridge recorded a year ago. However, full-year profits of $2.86 billion were well up from the $2.07 billion the company netted in 2016.
A big reason for the company’s stronger bottom line this year was due to income tax recoveries, as Enbridge was able to add back $2.7 billion to its bottom line, largely due to U.S. tax reforms that were finalized late last year.
Investors unimpressed with the results
Despite a good performance for the quarter and for the year overall, Enbridge’s stock failed to generate any momentum. Over the past six months, the share price has plummeted more than 13%, and with seemingly no end in sight, investors may have been hoping that a strong quarter could have finally gotten the stock out of this hole.
The stock recently hit a 52-week low and has been able to see a little stability since then, but how long it lasts is the big question.
Oil prices haven’t helped the stock
What’s perhaps most interesting is that when oil prices were on the rise in the latter half of 2017, that did nothing to help Enbridge’s stock price. Instead, the stock continued its decline at a time when many of its peers got some sort of a boost from rising optimism in the industry.
Now with oil prices declining from recent highs, concern and pessimism have returned, and that has resulted in lots of selling in oil and gas stocks. Although OPEC agreed to extend supply cuts through to the end of the year, the big concern is what happens when those cuts are lifted and everyone starts pumping again and perhaps looking to make up for lost time.
The danger is that oil prices are artificially high, even at their current levels, and that the current prices won’t be sustainable.
Bottom line
While Enbridge might be an attractive dividend stock, as it currently pays more than 6.2% after the sharp decline in share price, there is still too much risk and uncertainty in the industry for it to be a viable investment for most.
