Investors fear depressed energy prices will hurt oil and gas shipping volumes, but this company’s transformation has positions it to weather the downturn.
Its long-term contracts with leading oil refiners and integrated producers will help protect investor value.
ENBRIDGE INC. (Toronto symbol ENB; www.enbridge.com) operates pipelines that pump oil and natural gas from Western Canada to eastern Canada and the U.S. It also distributes gas to consumers in Ontario and Quebec.
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Traditional oil storage facilities are now close to their capacity due to low demand for gasoline and jet fuel during the coronavirus pandemic. As a result, Enbridge plans to let oil producers use a portion of its soon-to-be-decommissioned Line 3 pipeline in Saskatchewan and Manitoba to store some of their crude.
The company is offering to store a total of 900,000 barrels for eight months.
Deals like this will help Enbridge keep rewarding its investors with regular dividend increases. With the March 2020, payment, Enbridge raised its quarterly dividend by 9.8%. Investors now receive $0.81 a share instead of $0.738. The new annual rate of $3.24 gives investors a very high yield of 7.4%.
Enbridge also benefits as 98% of its shipping contracts are backed by take-or-pay agreements, which oblige customers to pay regardless of whether they use their contracted pipeline space or not.
Dividend Stocks: Stable shipping contracts should support revenues and dividends
Meantime, the company’s revenue in the quarter ended March 31, 2020, fell 6.6%, to $12.01 billion from $12.86 billion a year earlier. That missed the consensus forecast of $12.64 billion.
The decline is partly because Enbridge sold $400 million of less-important operations. Warmer-than-usual weather also hurt gas sales in Ontario and Quebec.
However, earnings before unusual items gained 2.5%, to $0.83 from $0.81. That easily beat the consensus estimate of $0.74.
Due to COVID-19, Enbridge is now seeing lower volumes on its crude oil pipelines. In response, it will defer $1 billion in planned capital spending. The company will also cut $300 million from this year’s costs.
Having said that, the pandemic’s impact going forward will be largely offset by Enbridge’s shipping contracts—98% of which are take-or-pay agreements, obliging customers to pay whether they use the pipeline space or not. What’s more, leading oil refiners and integrated producers account for 97% of the company’s oil pipeline revenue. Its gas-pipeline division also draws 91% of its revenue from large, stable customers.
“This Pipeline Operator” ???? Why not NAME the pipeline operator right at the first headline ? “This pipeline operator” and similar is just infantile !!
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“This Pipeline Operator” ???? Why not NAME the pipeline operator right at the first headline ? “This pipeline operator” and similar is just infantile !!
Thanks for your comment. Sometimes we tease the stock in the e-mail subject line – but you just have to click on it to see what the stock is!