Nov 092017
 

tl:dr. The answer is yes, Enbridge is a good buy. šŸ™‚

Fair Market Value ofĀ Enbridge (ENB)Ā 

Canadian pipeline company Enbridge is currently trading at around $47 per share. But based onĀ Benjamin Graham’s formula for valuing stocks, which I’ve discussed before,Ā the fair market value of Enbridge should be around $62.

Enbridge stock’s EPS is $1.96. The growth rate (g) is 10.5% a year according to Nasdaq.com.Ā And long term high quality corporate bonds currently yield 4.1%, which represents the (Y) variable in the equation above. So we can see that (1.96x(8.5+2×10.5))x4.4/4.1 = $62

$62 per share is in line with what most analysts have determined as well. For example TD Equity Research recently posted a 12 month target of $62 for Enbridge.Ā Here is the full research paper for anyone interested. This indicates that ENB may be oversold right now.

If Enbridge climbs to $62 per share that would be a 37% increase in total return. That’s pretty darn good! šŸ˜€ This is why I believe Enbridge is potentially oversold right now and is a good buy. šŸ˜€ Over the past decade ENB dividends have increased by 10% annually. Enbridge plans to continue growing its dividends by at least 10% every year through 2024.

Enbridge has one of the strongest economic moats of any company. Since pipelines require a lot of capital and regulatory approval, itā€™s not an industry where anyone can easily get in. Much like the railway industry, itā€™s pretty much an oligopoly without much competition.

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Nov 202015
 

Investing in Energy Infrastructure –Ā TransCanada Corporation

Pipe dreams can come true. We just have to find the right pipeline company to make it happen. šŸ™‚ In today’s post I’ll explain how to earn a tangible profit in the stock market with minimal effort and risk. And the best part is we don’t need any savingsĀ to do this. šŸ˜‰ I actually use this strategy a lot for my retirement planning. It’s known as the Stable Leveraging technique.

The purpose of stable leveraging is to use credit in a low-interest rate environment to harness the high yielding potential and long term stability of energy infrastructure companies in order to make some easy money. And it only takes a few minutes to set up if we already have a discount brokerage account.

 

How does Stable Leveraging work?

We simply use borrowed money to invest in common shares of pipeline companies. Then we use the earned dividends from the investmentĀ to pay off the interest incurred from the loan until the economic situation changes.

This investment philosophy is very different than “I have $X. What should I invest it in?” because Stable LeveragingĀ assumesĀ we have no money to begin with and therefore puts the risk of investing on both the borrower, and the lender.

What do weĀ need to make the stable leveragingĀ strategy work?

  1. A publicly traded, large-cap, blue-chip, dividend growth stock in the pipelineĀ sector that’s been operating for at least 50 yrs.
  2. This stock must also be trading at a discount relative to its peers, and its own historic P/E ratio.
  3. A reliable source to borrow cheap money from, that costs at least 1Ā percentage point less than the pipelineĀ stock’s yield.
  4. A 10 year investment horizon minimum, and the stomach to deal with market fluctuations.
  5. An exit strategy.

These 5Ā criteria are the essential ingredients to pulling off this maneuver successfully with minimal risk. šŸ˜‰ One company that foots the bill is TransCanada Corporation.

15-11-transcanada-pipeline-corp-stock-investment

Earlier this week I purchased 100 shares ofĀ TransCanada Corp (TRP) using 100% borrowed money. I will useĀ my example to demonstrate the advantages of implementing stable leveraging. TransCanada is publicly tradedĀ on both Canadian and U.S. stock exchanges. šŸ˜‰

15-11-purchase-100-trp-shares

I paid commission of $9.99 to make this trade, so the total cost is $4,209.99. For the purpose of this post I’ll use $4,200 to make the calculations look cleaner and to make the strategy simpler to explain and understand.

I used my margin account at TD to borrow about $4,200 to buy 100 shares of TRP at $42 per share.Ā The rate of interest I incur on this borrowed money is 4.25%, which would be the same as anyone else using TD’s services. ButĀ since I borrowed the money to invest, my 4.25% annual interest rate is tax deductible which makes my effective after-tax cost 3.0% per year on the $4,200 loan.

I used the loan to purchase 100 shares (for $4,200) of TransCanada Corp, which at the time, had a dividend yield of 5.0%. Since these dividends are eligible for theĀ Federal Dividend Tax Credit, my after-tax dividend yieldĀ is 4.8% per year.

Since my effective cost of borrowing is currently 3.0%, and I’mĀ earning 4.8% on my TRP investment, the difference between the two (1.8%) is how much I take home each year. 1.8% of $4,200 is about $75. It’s not much, but it’s $75 of passive incomeĀ nonetheless. The balance of my loan will remain at $4,200. The principal does not get repaid. Dividends are deposited into my account, and interest payments are withdrawn automatically. šŸ™‚

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