Penn Wealth Publishing

2019.12.08 Penn Wealth Report Vol 7 Issue 05

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10 penn wealth Report volume 7 issue 05 08 Dec 2019 Penn Wealth Report Copyright 2019. All Rights Reserved. investment intelligence Enbridge, Inc Oil & Gas Midstream e content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment profes- sional before investing any money. Shortly after Canada's first major oil dis- covery in Leduc, Alberta (Leduc No. 1) in 1947, Imperial Oil was incorporated with the goal of building the necessary pipelines to transport the oil from Leduc to Regina, Saskatchewan. A few short years later, the company battled the frigid winter and the wet spring of 1950 to expand their pipe- line across the Canadian prairie, ultimately ending up in America's Great Lakes region. Imperial, which would become Enbridge, shipped 30 million barrels of oil in its first full year of operation. Today, Enbridge transports 2.8 million barrels of oil each day. With the world's longest crude oil and liquids pipeline system, this $74 bil- lion company moves nearly two-thirds of Canada's crude oil exports to the US, in addition to transporting 20% of the natural gas consumed in the US. But it is more than a trans- porter of energy: Enbridge owns and operates the third-largest gas utility in North America, providing regulated energy for 2.19 million residents of central and eastern Ontario. Additionally, the company has been growing its international business, and strengthening both its natural gas and alterna- tive energy segments. While some midstream com- panies tend to allow their slow-and-steady pipeline businesses to stagnate, while oth- ers (remember energy-trading and "utilities" company Enron?) diversify into areas they know nothing about, Enbridge's experienced management team has remained focused on a logical, growth-oriented path forward. e firm has, in fact, around $20 billion in secured expansion projects in the works. Consolidating its businesses. One of our favorite recent moves by man- agement was the purchase, for $7 billion, of the company's disparate units. By fold- ing Enbridge Energy Partners LP, Enbridge Energy Management LLC, and Enbridge Income Fund Holdings Inc, into the parent company, the firm greatly simplified both its operations and its tax structure. Earning its low beta. Investing in companies for income can be risky business. Unfortunately, certain stocks and other vehicles (like closed-end funds) want to highlight their fat yield, hoping that investors don't start snooping around into the rationale for or sustainability of that yield. I once knew a veteran broker who would print out a dot matrix report to present to clients during a review. He would high- light the dividend yield of each investment in their portfolio, which displayed on the right side of the page, while covering up with sticky notes the midsection of the report, which showed gain or loss. He was not amused when I asked him what he was trying to accomplish. While Enbridge does, indeed, have a fat dividend yield of around 6%, its 5-year beta (risk measure) is only 0.57. at low number is due to the steady (energy flow- ing through pipelines), lower risk (regulated utilities) nature of their business. A lower-risk business model and a fat dividend yield are just two reasons we own this oil and gas midstream play in the Penn Strategic Income Portfolio. ...Enbridge's experienced man- agement team has remained focused on a logical, growth-oriented path forward. Enbridge's extensive energy infrastructure. Courtesy: Enbridge

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