| Enbridge Inc. Series 9 Preferred (ENB.PF.A) | |
| Author(s)’ disclosure of share ownership: | Author(s) hold shares |
| Last updated: | 15-Feb-24 |
| Share Price At Date of Last Update: | $17.35 |
| Yield: | 5.9% |
| Currency: | $ Canadian |
| Generic Rating (This rating does not consider the circumstances of any individual investor and is therefore not specific advice for any individual): | Strong Buy at $17.35 |
| SUMMARY AND RATING: These Enbridge rate reset preferred shares (ENB.PF.A on Toronto) were originally issued at a price of $25.00 back on March 13, 2014 paying 4.4% on a $25.00 amount ($1.10 per year). On December 2, 2019 when the 5 year government of Canada bond yield was just 1.437% they “reset” to pay 4.097% on the par value of $25 or $1.02425 for five years ending December 1, 2024. Note that preferred shares can have customised aspects that affect their value. We have described the features here but we do not guarantee completeness or total accuracy of this description. For more detail consult the prospectus on sedar.com. On February 15, 2024, they traded at $17.35 to yield 5.9% per year. Soon after they were issued these shares fell below $25 and have remained mostly well under $25 and been quite volatile for a combination of reasons over the years that included uncertainty about Enbridge’s prospects, falling interest rates (that pushed down the expected reset rate) and a general decline in the market appetite for rate reset shares that pushed the required yield up and the price down. If held in a taxable account, they are eligible for the dividend tax credit. The dividend is cumulative (if they skip a dividend due to financial difficulty, you may later still get that dividend). The dividend will reset every five years and the next reset is December 1, 2024 and will be set at the yield on the five-year Canada Bond at that time plus 266 basis points. Enbridge cannot redeem these shares before December 1, 2024, but on that date (and on each future 5 year anniversary) can redeem at $25. That feature effectively caps the future price at $25 or maybe (given the cost to redeem and issue new shares) at very most $27 but at this time it seems somewhat unlikely that we will ever see $25 again so the cap is not a concern. These preferred shares are subject to a market value decline if Enbridge’s outlook worsens and there is some potential for dividends to be skipped or for Enbridge to go bankrupt with no recovery of this investment. However we suspect that the possibility of such a scenario is quite remote. Enbridge’s web site indicates that these shares are rated PFd-3 (high) by DBRS. This is on a scale of 1 to 5 where 1 is the strongest. Therefore these shares are rated as somewhat risky in terms of paying the promised yield. And they have certainly proven to be volatile in terms of price. If the 5 year Canada bond yield is at 3.0% at the next reset date (9 and a half months from now) then the new distribution would be 5.66% of 25 or $1.415 cents annually (up significantly from the current level) which would be a yield of 8.2% of the current price. Or, if the Canada 5 year bond yield is down to 2.5% at December 1, 2024 then the reset dividend would be 5.16% of $25 or $1.29 for a yield of 7.4% at the current price. Overall, we would rate these shares a Strong Buy. The market value could decrease or increase and the yield upon reset is unknown. However, the yield (on the current price) upon reset appears set to be materially higher than the current yield which was set based on a Canada bond yield of 1.44% and the current Canada bond yield is 3.7% and seems very unlikely to fall back under 2.5% by December 1, 2024 although anything is possible. | |
| INSIDER TRADING / INSIDER HOLDING: It does not appear that insiders hold these shares. | |
| Symbol and Exchange: | ENB.PF.A, Toronto |
| Basis and Limitations of Analysis: The following applies to all the companies rated. Conclusions are based largely on achieved earnings, balance sheet strength, achieved earnings per share growth trend and industry attractiveness. We undertake a relatively detailed analysis of the published financial statements including growth per share trends and our general view of the industry attractiveness and the company’s growth prospects. Despite this diligence our analysis is subject to limitations including the following examples. We have not met with management or discussed the long term earnings growth prospects with management. We have not reviewed all press releases. We typically have no special expertise or knowledge of the industry. | |
| DISCLAIMER: All stock ratings presented are “generic” in nature and do not take into account the unique circumstances and risk tolerance and risk capacity of any individual. The information presented is not a recommendation for any individual to buy or sell any security. The authors are not registered investment advisors and the information presented is not to be considered investment advice to any individual. The reader should consult a registered investment advisor or registered dealer prior to making any investment decision. For ease of writing style the newsletter and articles are often written in the first person. But, legally speaking, all information and opinions are provided by InvestorsFriend Inc. and not by the authors as individuals. The author(s) of this report may have a position, as disclosed in each report. The authors’ positions may subsequently change without notice. | |
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