tl:dr. The answer is yes, Enbridge is a good buy. 🙂
Fair Market Value of Enbridge (ENB)
Canadian pipeline company Enbridge is currently trading at around $47 per share. But based on Benjamin Graham’s formula for valuing stocks, which I’ve discussed before, 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. 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. Here is the full research paper for anyone interested.
If Enbridge climbs to $62 per share that would be a 37% increase in total return. That’s pretty darn good! 😀 This is why I believe Enbridge is potentially oversold right now and is a good buy. 😀 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, it’s not an industry where anyone can easily get in. Much like the railway industry, it’s pretty much an oligopoly without much competition.
Using Stable Leverage to Invest in Enbridge
A couple of years ago I revealed one of my secrets to make money without doing much work. It’s called stable leveraging. The idea is to invest in pipeline companies using 100% borrowed money. I explained how it works in my previous post using a real life example with TRP stock.
Enbridge stock has fallen about 15% from one year ago and is probably near a bottom. Using technical analysis we can see that Enbridge has a pretty strong support in the low 40s, which it hasn’t broken in many years. I think it’s better to buy when there’s a high probability of nearing a bottom than to actually try timing the exact bottom. 😉
The way I would approach stable leverage for Enbridge is to buy 100 shares of ENB stock using borrowed money at 2.5% interest rate from my brokerage account. ENB currently pays a 5.2% annual dividend. So after interest expenses I will earn $127 of dividend income every year. 😀 This strategy requires no maintenance, and $0 of my own savings. It’s almost like a free lunch. 😀
In order for an investment to meet my Stable Leverage standards it must pass 5 criteria.
- Publicly traded, large-cap, blue-chip, dividend growth stock in the pipeline sector.
- Stock trades at a discount relative to its peers.
- I can borrow cheap money.
- I have a long term investment horizon.
- I have an exit strategy.
Since all my criteria are met, I will use my Stable Leverage strategy for this investment. My TRP stock earns me over $100 of passive income every year, net of interest fees. Furthermore, TRP’s stock price has increased 48% since I bought it, easily beating the stock market index. If I hadn’t used this strategy back then I would have missed out on literally thousands of dollars of gains. And now I see the same opportunity in ENB to do it again. 🙂
Going into debt to buy stocks isn’t the most popular retirement plan. But many of the best financial decisions are made by going against popular opinion – as long as proper research and due diligence is conducted prior. I plan to buy 100 shares of Enbridge (TSE:ENB) later this month. There’s a small risk I can lose money with this strategy, but it’s a risk I’m willing to take.
Random Useless Fact
Money can’t solve everything.