Greetings. I have read your comments on Bonavista.
I would be very interested in your appraisal of Enerplus and the prospects for the dividend to be maintained.
Best regards and thanks,
This will be the third time I have addressed the opportunities and risks associated with Enerplus Corp. . The first time was on June 2, 2010 for Zoro. At the time the stock was trading in a tight range with support at $22.00 and resistance at $25.00. It was observed that the stock had been building a big base and seemed to be ready to pop. That’s exactly what happened as the shares ran up to a high of $33.00 by January of 2011.
The second time I ran the charts for ERF was for Ted on Sept. 11, 2011. The charts of the day indicated that the selling that started in January of 2011 was still the dominate theme for the shares but that there was a profitable trade developing if there was a retest of support at $24.50. There was a bounce off of support in October that ran to $29.50 by November of 2011 but that was all the gas in the tank. Resistance came in along the 200-day moving average and there has been nothing but selling since.
A review of the current trend, support, and resistance will help inform the potential for the dividend.
The three-year chart illustrates the downtrend that has been in place since January of 2011. There have been trading opportunities but if you were holding ERF for the dividend it really depended what price you paid for the income. At this writing the dividend yield is 9.2 per cent which in the current environment is an attention grabber. What I am wary of is that a rich payout can often distract us from our stated mission of generating real returns.
When management reported their capital budget for 2012 in January it was also cited that they had no intention of cutting the dividend. This, despite the fact that capital spending and dividend payouts would exceed operating cash flow and require debt financing.
What should not be ignored on the chart is the downtrend and the death cross that formed in late July of 2011. Until the retreat is reversed the question I have asked myself is if the rich dividend is a value trap. The Venus Flytrap lures its prey with a sweet and sticky nectar that leads to a death most foul! Could the robust dividend be acting the same way on investor psychology?
The six-month chart tells the tale of woe that continues to grip ERF. Every effort to move higher has been met with resistance along the 200-and 50-day moving average. There is support at $23.50 but at this point there isn’t enough evidence to suggest a buy. I would recommend waiting to see if $23.50 holds and if we get a bounce. No sense in chasing a golden dream that becomes a silver hook!
Make it a profitable day and happy capitalism!
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