Why did Enbridge Inc. suspend its dividend reinvestment plan? Is this a bad sign?
Well, it’s bad if you like acquiring shares with no commissions. But it’s a good sign as far as Enbridge’s financial position is concerned. By suspending its DRIP, Enbridge is signalling that it doesn’t need – or want – the crutch of being able to pay investors with shares instead of cash.
The company is also effectively saying that it considers its current share price to be well below its intrinsic value. Just as it probably wouldn’t want to do a formal equity issue at the stock’s current levels, it doesn’t want to dilute investors by steadily issuing shares under its DRIP.
Darryl McCoubrey, an analyst with Veritas Investment Research, said Enbridge’s decision to suspend the DRIP is a positive development. “In the long term this is a really good sign because it is suggesting that a lot of that worry around their financial risk and balance sheet should start to fade away,” he said.
Selling new equity – which is effectively what a DRIP accomplishes – is also expensive for Enbridge, Mr. McCoubrey said. Not only do the shares carry a yield of more than 6 per cent – which Enbridge has to pay on every new share it issues – but the company’s DRIP gave investors a 2-per-cent discount on new shares.
Enbridge said on Friday that it no longer needs the DRIP as a source of financing. “The company has elected to suspend the DRIP at this time given substantial progress on its funding and asset sales plan, which will allow it to meet any remaining equity requirement for the balance of its currently secured growth program,” which totals $22-billion for 2018 through 2020, it said.
The pipeline operator announced the DRIP suspension on the same day that it released better-than-expected results. The company reported a net loss of $90-million or 5 cents a share, but on an adjusted basis – excluding unusual and non-recurring items – earnings jumped by 48 per cent to $933-million or 55 cents a share. Distributable cash flow rose 19 per cent to about $1.58-billion.
The DRIP suspension is effective with the scheduled dividend payment of Dec. 1, which means investors enrolled in the plan will receive cash instead of shares on that date. The suspension applies to Enbridge’s own DRIP, which is administered by its transfer agent on behalf of investors whose Enbridge shares are registered in the shareholder’s name.
Many brokers also operate their own DRIPs that let shareholders reinvest dividends from Enbridge and other companies. The status of these “synthetic” broker DRIPs – which allow for whole, but not fractional, share purchases – is less clear. I spoke to one discount broker who said its Enbridge DRIP will continue, with the shares now being acquired in the market instead of from Enbridge’s treasury. Another discount broker said it will discontinue its Enbridge DRIP.
“We can’t comment on the synthetic DRIP programs offered by brokers as it would be up to the broker. We can’t hypothesize on what they may do or not do,” an Enbridge spokeswoman said in an e-mail.
My wife and I each have a TFSA with about $25,000 in unused contribution limits. Can I transfer holdings from my non-registered brokerage account to the TFSA? If I do will it trigger taxable capital gains? Conversely, if I move a security that is down in value from its acquisition cost, will the transfer trigger a capital loss for tax purposes?
It would be wonderful if you could contribute a winning stock to your TFSA and avoid capital gains tax, but it doesn’t work that way. When you make such an “in-kind” contribution, it’s considered a sale in the eyes of the Canada Revenue Agency, and you must report the capital again. Just to prove that life is unfair, if you make an in-kind contribution of a stock that has fallen in value since you bought it, you are not permitted to claim the loss for tax purposes. One way around this problem is to sell the security, and then contribute the cash to your TFSA. To qualify as a capital loss – and avoid the “superficial loss” rule – you would have to wait at least 30 days to repurchase the same security. Alternatively, you could purchase a similar, but not identical, security in your TFSA immediately and still get to claim the loss.
I’ve never contributed to my TFSA as I was a small-business owner for 26 years and we owned five homes over those years and paid the the maximum we could afford all the time. What amount can I put into a TFSA now? I’m in my 50s.
The TFSA was launched in 2009 with an annual contribution limit of $5,000. The limit remained at $5,000 for 2010, 2011 and 2012, rose to $5,500 for 2013 and 2014, jumped to $10,000 for 2015, then fell back to $5,500 for 2016, 2017 and 2018. An individual who was at least 18 when the TFSA was launched but has not deposited a dime into his or her TFSA would therefore have accumulated $57,500 of contribution room.
E-mail your questions to firstname.lastname@example.org.