When Yield Is Not Enough

09/30/2009 2:18 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

In the current stock market, Enbridge (NYSE: ENB) is neither fish nor fowl. And since the stock has hit my December 2009 target price of $38 a share, I'm going to sell it out of Jubak's Picks.

Here's what I mean by that cryptic “neither fish nor fowl” characterization.http://jubakpicks.com/wp-includes/js/tinymce/plugins/wordpress/img/trans.gif

I bought North American oil and gas distributor Enbridge for the Picks portfolio back in December 2007 because I thought its 3.6% yield would make the stock price very stable in a tough stock market and that investors looking for safety would bid up the price of these shares.

I got half of what I wished for. The stock was very stable, but I didn't get any gain in stock price. Enbridge trades today for roughly the same price I paid for it on December 18, 2007.

I am looking at a 6.3% return from the dividends that I collected during the 21 months that I owned the stock. Not terrible, but I had hoped for a higher total return. (By the way, for all those who have asked when I'll put the dividend portfolio that I ran at MSN Money back up, the answer is next week. Finally.)

In the future, though, Enbridge isn’t likely to have the revenue and earnings recovery to produce an attractive price gain in a market that is set—over the next eight to 12 months anyway—to believe in and reward recovery. (For my take on the near and intermediate term, see this recent post.)

With a yield of 3.6%, Enbridge doesn't pay enough of a dividend to make up for its relatively lackluster prospects for price appreciation.

I think you can find better recovery stories that will earn you a bigger capital gain over the next eight months to a year, and I think you can find better yield stories, too. Dividend yield investors should take a look at the Enbridge master limited partnership Enbridge Energy Partners (NYSE: EEP) with its 8.8% yield.

I'm selling Enbridge out of Jubak's Picks with a return of 6.3% since I added it to the portfolio.

 (Full disclosure: I own shares of Enbridge Energy Partners in my personal portfolio.)

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