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Enbridge: Pipeline Profits

03/19/2014 7:00 am EST


Tom Slee

Retired- Financial Advisor, Money Manager, Gordon Pape Enterprises LTD

Our top income pick this month operates the world's longest crude oil and liquids pipeline system, as well as Canada's largest natural gas distribution network, writes Tom Slee, contributing editor to The Income Investor.

Incorporated in 1949 as Interprovincial Pipeline, Enbridge (ENB) has expanded into a giant energy delivery organization with a market capital of close to $36 billion.

Annual revenues are in the $30 billion range and operating profit for 2014 is likely to exceed $5 billion.

Enbridge is currently engaged in the largest capital program in its 65-year history, representing $27 billion of commercially-assured growth. All of these projects are planned to be in service by 2016.

In December, Enbridge announced an 11% dividend increase to $1.40 and issued 2014 earnings per share guidance of between $1.84 and $2.04. This would represent growth in the 10% range.

Analysts expect to see a further improvement to about $2.25 in 2015, along with another dividend hike to $1.56. This is a company that has increased its distributions every year since 1996, and maintains a target dividend payout of between 60% and 70% of earnings.

Enbridge has received a lot of adverse press coverage as activists continue to block the company's high-profile Northern Gateway pipeline proposal.

Trading at $47.52 and yielding 2.7%, equal to about 4.4% from a bond in an unregistered account, the shares represent excellent value.

They offer rising income and growth, as well as downside protection during the present volatile markets. Based on current earnings and the company's prospects, we can realistically expect a 15% total return.

These blue-chip common shares are suitable for investors seeking income and growth and who are able to assume some risk.

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