A First Look at Enbridge Energy Partners (EEP).

Bonds outstanding: $4.8 billion

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What the company does – Enbridge Energy Partners LP is one of the largest crude-oil transporters in America. The company operates the U.S. portion of the Lakehead pipeline system, the world’s longest crude pipeline, which stretches 3,300 miles from the Canadian oil fields in Alberta to Chicago, points east, and is currently being expanded toward the Gulf Coast. The company has several other smaller crude pipelines in the U.S. as well as a sizable natural gas gathering and processing business.

Morningstar’s take – Enbridge Energy Partners, L.P. EEP is a master limited partnership operated by its general partner, Canadian pipeline giant Enbridge Inc. ENB. We’re big fans of EEP’s crude oil business. While its natural gas gathering and processing operations detract somewhat from an otherwise wide moat, they also bring attractive growth potential thanks to booming unconventional natural gas liquids (NGL) production.

DIVIDEND RECORD – EEP issues stock and debt to pay for its dividends not covered by earnings (see cash flow chart further below).  Dividend gaps in 2007 and 2009.

Dividend: $0.53 quarterly

Dividend yield: 6.3% ($2.12/$33.55)

Dividend payout ratio: 203% using the most recent EPS ($2.12 DIV/$1.04 EPS) or 252% using average adjusted EPS ($2.12 DIV/$0.84 avg adj. EPS)

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EARNING POWER – $0.84 six year average adjusted earnings @ 273.15 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.81

$285 M

140 M

$1.04

2007

$1.23

$250 M

173 M

$0.92

2008

$1.82

$403 M

194 M

$1.48

2009

$1.12

$261 M

233 M

$0.96

2010

($1.09)

($260 M)

239 M

($0.95)

2011 (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.38

$97 M

253 M

$0.36

2011 Q2

$0.51

$130 M

255 M

$0.48

2011 Q3

$0.36

$96 M

265 M

$0.35

2011 Q4 (est)

$0.39 (est)

$106.5 M (est)

273.15 M

$0.39 (est)

2011 total (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

Six year average adjusted earnings per share is $0.84

Consider contrarian buying below $6.72 (8 times average adjusted EPS)

Consider value buying below $10.08 (12 times average adjusted EPS)

Consider speculative selling above $16.80 (20 times average adjusted EPS)

Enbridge Energy Partners is currently trading at 40 times average adjusted EPS.  This is highly speculative pricing.

CASH FLOW – Capital expenditures and dividends are being funded from debt and stock issuance; not operating profits.

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BALANCE SHEET – Poor book value to stock price ratio; stagnant increase in equity.

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Book value per share: $14.03

Price to book value ratio: 2.39 (under 1.0 is good)

Current ratio: 1.05 latest quarter (over 2.0 is good)

Quick ratio: 0.91 (over 1.0 is good)

Debt to equity ratio: 1.39 (lower is better)

CONCLUSION – Enbridge Energy Partners (EEP) is a high dividend stock that lacks enough earning power to pay for that dividend out of operating profits.  It funds its dividend from periodic equity and debt issuances.  The stock is speculatively priced at 40 times average adjusted earnings.  The balance sheet is weak due to a high book value per share ratio.  EEP does not have a lot of current assets to pay for its current liabilities.  I would wait until the price drops below $10.08 per share (12 times average earnings).  The European double dip recession and sovereign debt crisis will spread to the USA.  This will tank the stock market.  Buy EEP on sale if you want to.

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DISCLOSURE – I don’t own Enbridge Energy Partners (EEP).

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Published in: on January 24, 2012 at 8:28 pm  Leave a Comment  

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