Energy Sector Update for 12/18/2015: ENB.TO, TRP.TO
Recently, Enbridge Inc. (ENB.TO) and TransCanada Corporation (TRP.TO) experienced fairly significant share price volatility. In the last month, the two stocks headed in dramatically different directions with ENB declining 11% and TRP gained 13.2%. For the year-to-date, ENB delivered a negative 26% return and TRP -15%.
For perspective, Credit Suisse considered a variety of data starting with a 5.31% average Canadian Government of Canada 10-year bond yield from June 21, 1989 to now (currently 1.50%). From January 20, 1986 to now, ENB's average dividend yield was 5.02% and, on a slightly longer-term data series, TRP averaged 5.05%. On a yield spread basis from June 21, 1989 to now, ENB's average was -80.23 bps and TRP was -53.64 bps. At the current trading ENB and TRP offer dividend yields of 4.82% and 4.32% that equal yield spreads of 330.4 bps and 280.5 bps, respectively. These figures are well above the historic levels on longer-term data sets.
Credit Suisse notes that there are clear reasons behind the share price performances that include: contagion (Kinder, crude and complexity); capital market concerns (equity and debt); commodity concerns; and, reassessing growth. "These issues are excessively discounted in the current share prices in our view and provide an opportunity for longer-term holders."
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