Investing

Investing Idea - Dividend Growth

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  • Dec 11th, 2017 10:37 am
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daverobev wrote:
Dec 4th, 2017 2:33 pm
That's a pretty damning article, isn't it? Your opinion?

I mean, basically it says Enb is losing money every year, forever, right? It's only surviving because of investor confidence -> new issues.
That may be what the article says, but it's not actually true. What is true is that ENB can only grow at a rapid rate because of investor confidence and new issues. This however is true of every pipeline company and REITs, all of which use a similar model. Hell, this business model goes all the way back to canals in the 18th century.

It works like this: ENB has pipelines which pay dividends to existing shareholders. When it wants to build a new pipeline because it feels that it will be accretive, it issues shares to fund the new pipeline. The new shareholders provide the capital, and provided that the project actually is accretive, old shareholders benefit as well. Shareholders should worry if ENB's growth is not proving accretive on a per share basis, but that has not been the case so far. Some day, of course, ENB will stop growing rapidly, as there will be no more need for new oil and gas pipelines. Then its business will look a lot more like ENF, which has tons of earnings, since it's not spending much on growth. Instead, it just pays out the proceeds from its mature assets. However, right now, there is huge demand for new oil and natural gas infrastructure to serve the shale complex. How fast ENB grows now (provided it doesn't overstretch its balance sheet or dilute excessively) will determine how much it can pay out a decade or two from now, when the assets right now will still have decades left in service, but there will be less need for new pipelines.
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MrMom wrote:
Dec 4th, 2017 2:05 pm
Surprised you didn't see this story with your Globe subscription. https://www.theglobeandmail.com/globe-i ... e37172663/
Tried to point this out 2 months ago here and here but as usual I got promptly scolded by Rod and others who have never experienced a bear market.

Reality is as soon as this FED (and now Trump too) enforced bull market ends Enbridge and all the others (Hydro One, AltaGas, TRP, etc) all promising insane unsustainable dividend growth on already insane dividend yields will get hammered. I've seen this song before in 1999 when TRaP cut the dividend in 1/2 and sold 1/3 of the company's assets and the stock dropped below $9 from $35.

The focus on double digit dividend growth by mega caps is simply funded by money printing and got going in earnest in 2009. In bad markets, Enbridge would never dare purchase Spectra at such an obscene price. We were all too busy crapping our pants to remember that BCE in 2008 was supposed to be taken out in a leveraged buyout for $50 billion. Markets fell apart and everybody was shaking and the deal did not get done.

As a shareholder in some similar companies, I wish these clowns would stop taking on debt and stop growing a near $3.00 dividends 10% annually. Has anyone bothered to check what these companies pay in interest? BCE pays over a billion in interest expense alone, just absurd. Enbridge dividend was .21/quarter in 2009. Today it is more than triple that BUT....interest expense was 500 million in 2009, today it's 2.5 billion. Debt in 2009 was $15 billion today it's $70 billion. So congrats, your dividend tripled, stock price tripled (if you bought and held for 9 years) but your debt has quadrupled. Just absurd. But RFD thinks it's fine because they're getting their dividend growth.

I'd gladly give up some growth for reduced debt. When this FED charade ends and the banks/investors get cold feet, what happens when the dividends can't be sustained? See TRP, circa 1999 and say goodbye to our capital.
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why are the ENB preferred issues only $25? Cost so little compared to current pricing
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ottofly wrote:
Dec 5th, 2017 1:08 am
Tried to point this out 2 months ago here and here but as usual I got promptly scolded by Rod and others who have never experienced a bear market.
Incorrect, I’ve been investing since 1998, so I’ve experienced 2 bear markets. I just think they’re blown way out of proportion (as I posted here), and actually seen as opportunity to add more - not risky times to stay in the sidelines or cease partnership with good businesses.

ottofly wrote: Reality is as soon as this FED (and now Trump too) enforced bull market ends Enbridge and all the others (Hydro One, AltaGas, TRP, etc) all promising insane unsustainable dividend growth on already insane dividend yields will get hammered. I've seen this song before in 1999 when TRaP cut the dividend in 1/2 and sold 1/3 of the company's assets and the stock dropped below $9 from $35.
I strongly disagree. Companies do well because they grow earnings, cash flow and are well managed - regardless who is in the office. At the same token, many companies that continue to post lower earnings and are not well managed continue to do poorly, cutting or eliminating dividends or going bankrupt.

Once again, dividend growth can be sustainable as long as earnings and cash flow supports it. No company takes debt to grow dividends. Dividends are paid out of cash - not earnings or debt - so if cash flow doesn’t support the current payout, dividends are cut. Enbridge has enough cash flow to support the current dividend - show me in their income statement and balance sheet otherwise.

Your 1999 song about TRP is a different story - their dividend at the time ($1.12) was one of the highest yield of any TSE company at the time. TransCanada, different than Enbridge, was struggling with their growing debt and shrinking cash flow - hence the need to cut dividends by a third, eliminating ⅓ of all their staff, and selling $3 Billion worth of assets, to produce the money to pay debt. Most of the businesses that were sold by TRP were losing money for years. Enbridge is highly leveraged with lots of debt, but it not only has the cash flow to sustain that debt, it also is positioned to increase that cash flow considering their great execution and integration level. Integration and execution plays a big role - NOVA’s poor integration with Transcanada also contributed for their dividend cut. Don’t paint all companies with the same brush, you need to look at the financial statement to tell if a company is being responsible to keep increasing dividends or not. The market penalizes, not reward, companies that takes debt to grow dividends, so I suggest researching what the debt is being used for.

As a shareholder, I welcome a capital intensive company like ENB or TRP to use debt to fund growth, which is cheap to do it. I don’t want a business to be stagnant just because “the current yield is good enough”. As a shareholder, I expect cash flow, earnings and dividends to keep growing, at a minimum level above inflation, so I can have a decent return on investment - that’s what investing in equities is all about. ENB continues to deliver all metrics very solidly. It won’t be perfect every year and it one day might make the same mistakes than TRP or worse, who knows. If that happens, I will happily move on, while total return has been appreciating meanwhile. Until then, I welcome the current strategies in place.

ottofly wrote: The focus on double digit dividend growth by mega caps is simply funded by money printing and got going in earnest in 2009. In bad markets, Enbridge would never dare purchase Spectra at such an obscene price. We were all too busy crapping our pants to remember that BCE in 2008 was supposed to be taken out in a leveraged buyout for $50 billion. Markets fell apart and everybody was shaking and the deal did not get done.

As a shareholder in some similar companies, I wish these clowns would stop taking on debt and stop growing a near $3.00 dividends 10% annually. Has anyone bothered to check what these companies pay in interest? BCE pays over a billion in interest expense alone, just absurd. Enbridge dividend was .21/quarter in 2009. Today it is more than triple that BUT....interest expense was 500 million in 2009, today it's 2.5 billion. Debt in 2009 was $15 billion today it's $70 billion. So congrats, your dividend tripled, stock price tripled (if you bought and held for 9 years) but your debt has quadrupled. Just absurd. But RFD thinks it's fine because they're getting their dividend growth.

I'd gladly give up some growth for reduced debt. When this FED charade ends and the banks/investors get cold feet, what happens when the dividends can't be sustained? See TRP, circa 1999 and say goodbye to our capital.
Shareholders care about total return. To have that, you need growth. Debt is a cheap way to fund growth, as I’ve shown here. This works for the personal level too: I rather have $1 million in debt (HELOC to invest) with a $2 million portfolio than being debt free and have a $100,000 portfolio.

If money printing and FED were magical, there would be no bankrupcy, no dividend cuts and earnings and cash flow would keep growing. ENB (and TRP for the last 16 years) have been growing earnings and dividends steady, so you can’t attribute that to who is in the office or the state of the economy. Don’t underestimate the competence of management on a solid business because you don’t understand the structure of how that business operates.

This thread was never about dividend growth at any cost. It’s about sustainable dividend growth, in a way that capital appreciation is followed with that. If ENB has too much risk for you, then simply don’t invest on it. But it’s inaccurate to call them irresponsible or to tell that once the FED charade ends, they will end up like TRP in 1999. And on that note, TRP’s management was shaken up, and as a result, TRP'S earnings have grown at a reasonable 5.5% CAGR since then and dividends have grown at a 6.7% CAGR since then, producing an annual return of 10% CAGR since 2000 - while the SP500 had a 5% CAGR during the same period (dividends included) and TSX had a 5.8% CAGR during the same period (dividends included).

As usual, if one is patient enough when partnering with good businesses, one is rewarded nicely enough.



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That's your opinion. ENB has gone from $66 to $48, and the bear market for that stock is well underway and will continue and get worse. There are many here buying since $66 and all the way down. Yet you're pounding the table telling all it's a great buy and management is solid. Laughable. I have you trying to convince me that tripling the dividend, more than quadrupling the debt and quintupling the shares outstanding is a sound strategy. Bernie Madoff had a similar strategy...until a bear market hit. :D This has a limit that's being probed by many large cap corporations. Credit rating agencies are sounding the alarm. The market is telling you you're wrong and how low it goes will depend on when this FED induced charade stops and the natural business cycle is allowed to play out.
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ottofly wrote:
Dec 5th, 2017 8:07 am
That's your opinion. ENB has gone from $66 to $48, and the bear market for that stock is well underway and will continue and get worse. There are many here buying since $66 and all the way down. Yet you're pounding the table telling all it's a great buy and management is solid. Laughable. I have you trying to convince me that tripling the dividend, more than quadrupling the debt and quintupling the shares outstanding is a sound strategy. Bernie Madoff had a similar strategy...until a bear market hit. :D This has a limit that's being probed by many large cap corporations. Credit rating agencies are sounding the alarm. The market is telling you you're wrong and how low it goes will depend on when this FED induced charade stops and the natural business cycle is allowed to play out.
You're looking at price, not value. Let's review this in 5 years.

Maddoff was a Ponzi Scheme, are you suggesting the same behind ENB?

ENB is still investment grade. Agencies are simply signaling their debt is increasing. That's not necessarily a bad thing.

What do you suggest investing on, then? Or are you suggesting the whole stock market is a huge scam that will end up badly?

BTW, markets are cyclical so a bear market will end (briefly) with another bull market, which will last longer again and will keep making new highs. As it's been doing since 1870.


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rodbarc wrote:
Dec 5th, 2017 9:14 am
You're looking at price, not value. Let's review this in 5 years.

Maddoff was a Ponzi Scheme, are you suggesting the same behind ENB?


ENB is still investment grade. Agencies are simply signaling their debt is increasing. That's not necessarily a bad thing.



What do you suggest investing on, then? Or are you suggesting the whole stock market is a huge scam that will end up badly?


BTW, markets are cyclical so a bear market will end (briefly) with another bull market, which will last longer again and will keep making new highs. As it's been doing since 1870.



Rod


Let's see. Seems the only way to increase the dividends is to make outlandish acquisitions and spends billions on new projects. Borrow money, sell bonds, preferred shares, common shares, convertible debs. Debt keeps growing (can't be paid back because most of the cash is going to your outrageous dividend growth) just keep pushing it out further. Shares OS doubles, triples, quintuples..More and more cash flow to service the dividend on the massive paper floating around. Crescent Point applied a similar strategy. Look at the stock price today. What does this look like to you? Exactly. Charles Ponzi would be proud.

Oh it's a bad thing when they can no longer get reasonable prices for their paper or interest rates. Stock is down from $66. A few pennies up or down on the frac spread can hurt this company. I'm ok with some debt but this is getting out of hand. There comes a point where a mega cap can't sustain this type of growth. When I first bought BCE it's debt was under $8 billion. Today it's over $40 billion. What's the point of doubling my dividend is debt goes up 4-5 times to achieve this? Makes little sense.


No, I never suggested it's a scam. It is certainly artificial, since 2003 they won't let the natural cycle play itself out. If I want 10% dividend growth, I'll go to small-mid cap stocks such as an HLF, BOS, GS, SAS, CCL etc that can still grow dividends in a reasonable fashion with reasonable debt.

Agree, there is no doubt about that. I'm just saying there is a limit to what ENB is doing and that article simply confirms what I've said 2 months ago. I don't own ENB but my other holdings are showing similar strategies, although not as egregious as ENB. I guess Al Monaco needs to justify his outrageous compensation somehow.
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ottofly wrote:
Dec 5th, 2017 12:05 pm
Let's see. Seems the only way to increase the dividends is to make outlandish acquisitions and spends billions on new projects. Borrow money, sell bonds, preferred shares, common shares, convertible debs. Debt keeps growing (can't be paid back because most of the cash is going to your outrageous dividend growth) just keep pushing it out further. Shares OS doubles, triples, quintuples..More and more cash flow to service the dividend on the massive paper floating around. Crescent Point applied a similar strategy. Look at the stock price today. What does this look like to you? Exactly. Charles Ponzi would be proud.

Oh it's a bad thing when they can no longer get reasonable prices for their paper or interest rates. Stock is down from $66. A few pennies up or down on the frac spread can hurt this company. I'm ok with some debt but this is getting out of hand. There comes a point where a mega cap can't sustain this type of growth. When I first bought BCE it's debt was under $8 billion. Today it's over $40 billion. What's the point of doubling my dividend is debt goes up 4-5 times to achieve this? Makes little sense.


No, I never suggested it's a scam. It is certainly artificial, since 2003 they won't let the natural cycle play itself out. If I want 10% dividend growth, I'll go to small-mid cap stocks such as an HLF, BOS, GS, SAS, CCL etc that can still grow dividends in a reasonable fashion with reasonable debt.

Agree, there is no doubt about that. I'm just saying there is a limit to what ENB is doing and that article simply confirms what I've said 2 months ago. I don't own ENB but my other holdings are showing similar strategies, although not as egregious as ENB. I guess Al Monaco needs to justify his outrageous compensation somehow.
I understand where your coming from in regards to debt and i am starting to get nervous with the ballooning of debt with enbridge like it ballooned in Kinder Morgan which led to a dividend cut. I got suckered into the stock when they were projecting a 12 % div growth at about 55 dollars a share. I'm glad i sold half of my position at 52 as i cant trust a company who would project 12% dividend growth and in a few months cut that projection in amount and the length of time. Will give them a year to let the projects come on stream but i am nervous. My only problem with your post is comparing enbridge to stocks such as hlf, bos, gs, and ccl who have performed really poorly over the past 12 months. Those stocks dont really flash brilliance either.
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indo wrote:
Dec 5th, 2017 1:46 pm
I understand where your coming from in regards to debt and i am starting to get nervous with the ballooning of debt with enbridge like it ballooned in Kinder Morgan which led to a dividend cut. I got suckered into the stock when they were projecting a 12 % div growth at about 55 dollars a share. I'm glad i sold half of my position at 52 as i cant trust a company who would project 12% dividend growth and in a few months cut that projection in amount and the length of time. Will give them a year to let the projects come on stream but i am nervous. My only problem with your post is comparing enbridge to stocks such as hlf, bos, gs, and ccl who have performed really poorly over the past 12 months. Those stocks dont really flash brilliance either.
Finally, someone who gets it. Those companies was to imply that these are the market cap size stocks one should look at if you want sustainable dividend growth because of their low yield and not a recommendation. Just stocks people keep asking about here off the top of my head. If you want dividend growth you should look at stocks with low yields that have a realistic room to grow them long term. ENB is paying 5.6%, AltaGas is paying over 7.5% yet they raise the dividend last quarter and also talking 10% growth. A yield of 7.5% is huge, more than enough and already implying risk. What are these people smoking? When did large cap pipelines become growth stocks? A buyer of these stocks isn't really expecting 10% growth but rather stable stream of cash in the low single digit growth.
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ottofly wrote:
Dec 5th, 2017 5:24 pm
Finally, someone who gets it. Those companies was to imply that these are the market cap size stocks one should look at if you want sustainable dividend growth because of their low yield and not a recommendation. Just stocks people keep asking about here off the top of my head. If you want dividend growth you should look at stocks with low yields that have a realistic room to grow them long term. ENB is paying 5.6%, AltaGas is paying over 7.5% yet they raise the dividend last quarter and also talking 10% growth. A yield of 7.5% is huge, more than enough and already implying risk. What are these people smoking? When did large cap pipelines become growth stocks? A buyer of these stocks isn't really expecting 10% growth but rather stable stream of cash in the low single digit growth.
I totally agree, enbridge is the only high leverage stock i have but i am ok with it as nothing is certain..a lot of high leverage companies i feel are going to be cutting dividends during the next recession.
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anybody got their ENB div payed for December already?
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Why would ENB offer preferred shares @ only $25 when their share price is a lot higher?
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FlyOverMyDoodle wrote:
Dec 6th, 2017 12:23 am
Why would ENB offer preferred shares @ only $25 when their share price is a lot higher?
Preferred shares are valued differently from Common shares. Most ENB preferreds are valued in the $20's. For instance, ENB.PF.I is at $25.57 as of tonight.

They don't get the benefit of increased Common share price swells but their dividends are better-protected than those of Common shares.

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