ENBRIDGE INC. $52.76 (Toronto symbol ENB; Shares outstanding: 856.7 million; Market cap: $45.4 billion; TSINetwork Rating: Above Average; Div. yield: 3.5%; www.enbridge. com) continues to move ahead with the major reorganization it announced in December 2014.
The company plans to transfer some of its pipelines and wind farms to 19.9%-owned affiliate Enbridge Income Fund Holdings Inc. (Toronto symbol ENF). This company owns 42% of Enbridge Income Fund (Enbridge Inc. owns the remaining 58%), which holds a variety of businesses, including oil and gas pipelines and solar and wind farms.
Asset transfers like this, called drop-downs, free up cash the parent company can use for new projects. The affiliate also benefits because the new assets’ cash flow helps it maintain or raise its distributions to investors.
The reorganization has already freed up more cash for dividends: Enbridge raised its quarterly payout by 32.9% with the March 2015 payment, to $0.465 a share from $0.35; the new annual rate of $1.86 yields 3.5%. The company now aims to pay out 75% to 85% of its adjusted annual earnings as dividends, up from its old target of 60% to 70%.
The changes should help lift Enbridge’s 2015 earnings to $2.20 a share from $1.90 in 2014. However, the stock trades at a somewhat high 24.0 times that estimate. That leaves it vulnerable if it fails to meet its aggressive growth targets.
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