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UBS, BMO urge investors to snap up Enbridge as dividend play

Enbridge Inc. President and CEO Patrick Daniel speaks at the company's annual general meeting in Toronto on Wednesday, May 9, 2012.


Enbridge Inc. has been a pipeline of profits for investors for decades now, providing a one-two punch of steady capital appreciation and attractive dividend yields.

Analysts don't see that path being altered any time soon and are turning ever more bullish on the stock after the company Wednesday said it expects a not-so-shabby 12 per cent rise in annual earnings per share over the next five years. That beat earlier expectations for 10 per cent growth.

Both BMO Nesbitt Burns and UBS today upgraded the stock to the equivalent of buy ratings. They're certainly not alone in their assessment. According to Bloomberg data, 14 analysts have buy ratings, while only four have either hold or sell ratings.

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Enbridge revealed its latest forecasts at an investor day Wednesday in Toronto. It's planning $30-billion in new projects over the next five years, taking advantage of oil producers' strong need for new pipe that can alleviate price discounts amid a glut of supply in both Canada and the U.S.

Enbridge promised shareholders that the expected profit rise will reward shareholders with more income, too. "Even if dividend growth just parallels earnings growth, you're going to see 11 to 15 per cent dividend growth without needing to move our payout ratio past 70 per cent of earnings," said chief financial officer Richard Bird.

Enbridge stock has been rallying since the company's revised projections were made public Wednesday, but the stock is still off its 52-week high of $42.23 in late July.

That's a good reason to buy now, say analysts.

"The recent combination of stock (and price-to-earnings) pull back, combined with our confidence in visible 10 per cent plus earnings and dividend growth, makes for a compelling combination in a yield-starved market with a name that we expect will remain a sector leader," BMO analyst Carl Kirst said in a note. "While today's 14th annual analyst day did help to address some anxieties of late (reaffirming project timelines, for instance), we expect stock performance to be tied to good old-fashioned EPS delivery."

Upside: Mr. Kirst upgraded the stock to "outperform" and raised his price target to $47 (Canadian) from $44. UBS analyst Chad Friess raised his target by $1 to $43 as he upgraded Enbridge to "buy" from "neutral."


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Quebecor Inc.'s decision this week to buy shares in Quebecor Media Inc. from the Caisse de dépôt et placement du Québec isn't winning much praise from CIBC World Markets analyst Robert Bek. He thinks the deal was a bit expensive and is concerned with the added debt levels it will mean for Quebecor.

"Although the fundamental story remains intact and shares cheap, the price paid results in lower net asset value and likely squashes any expectation of dividend increases in the near term," he said.

Quebecor will repurchase shares from the Quebec fund giant for $1-billion in cash and $500-million in unsecured convertible debentures to be later issued by Quebecor.

"Although a Caisse monetization was long expected, the transaction values the Caisse's original stake at about $2.75-billion, making the deal a bit rich given that we had carried it at $2.41-billion," Mr. Bek said.

Downside: Mr. Bek cut his price target by $3 to $41 but maintained a "sector outperformer" rating.

Read more: Caisse forced to bail on weak Quebecor investment

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RBC Dominion Securities has sliced its earnings and dividend estimates on Chorus Aviation Inc. after the regional partner of Air Canada lost an arbitration decision on markups that will cost it millions of dollars and trim its cash flow. The amount owed wasn't clear but under the worse-case scenario, Chorus has estimated that it would be required to repay $24.4-million for 2010 and $24.7-million for 2011.

While negative for Chorus, RBC analyst Walter Spracklin said "it is important to note that the ruling not only provides for rate certainty, but has given investors an opportunity to capture what we believe will be a still very healthy yield at plus12 per cent."

Upside: Mr. Spracklin cut his price target by $1 to $4.50 and maintained an "outperform" rating.

Read more: Arbitrators side with Air Canada in Chorus dispute


Mag Silver Corp. has released the maiden resource estimate for its 100 per cent owned Cinco de Mayo project in Mexico. It indicated contained resources of 52.7 million ounces of silver, 785 million pounds of lead and 1.8 billion pounds of zinc. This "demonstrates the potential to develop the project into a significant high-grade underground silver-zinc-lead mine," commented Canaccord Genuity analyst Nicholas Campbell, who called the results "robust."

Upside: Mr. Campbell raised his price target by $1 to $18 and maintained a "speculative buy" rating.


Canaccord Genuity analyst Keith Carpenter thinks fertilizer giant Monsanto Co. was being conservative this week in forecasting earnings per share of between $4.18 and $4.32 (U.S.) for fiscal 2013. "With the backdrop of strong grain and oilseed pricing, and Monsanto once again finding momentum with market share, increased product offerings and expanding key markets, we see no reason at this time to expect anything but another solid year ahead for the company," he said.

Upside: Mr. Carpenter raised his price target to $104 (U.S.) from $94 and maintained a "buy" rating.


For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at#eyeonequities

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More


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