CALGARY - Enbridge Inc. (TSX:ENB) shares jumped to their highest price on record after the pipeline company announced major changes to its dividend policy and financial structure — moves that its executives described as "icing on the cake" for investors.
Shares of the Calgary-based company, which operates one of North America's largest pipeline networks, surged as much as 20 per cent on Thursday before giving up some of the gains. The shares still closed above their previous 52-week high of $56.87, finishing the session at $60.04 — up about 10 per cent from the previous close.
Enbridge had announced the changes late Wednesday after markets closed.
It said its dividend will increase by one third to 46.5 cents per share with the next dividend payable on March 1, 2015.
Enbridge also said it plans to transfer $17 billion in assets to its Canadian affiliate, Enbridge Income Fund (TSX:ENF) in what's known as a "drop down" transaction.
Competing Canadian pipeline firm TransCanada Corp. (TSX:TRP) has been under pressure from activist investor Sandell Asset Management Corp. to drop down more of its assets into its affiliates.
On a conference call Thursday, Enbridge CEO Al Monaco appealed to the sweet tooth of analysts in describing the benefits of the changes.
He said to think of Enbridge's $44-billion capital program, and the earnings growth that comes with it, as a cake that would be enhanced by the icing of the newly announced changes.
"We'll continue to make sure we're baking that cake with the right care and attention," he said.
Enbridge said the moves are designed to enhance the main company's shareholder value while providing low-cost funding for its capital program and asset acquisitions.
In other words, the icing should help to better reflect the value of the cake.
"So we're looking to the icing here... as really boosting or maximizing the value of what is already a very good plan," said Monaco
On Wednesday, Enbridge's board of directors approved a revised dividend payout policy range of 75 per cent to 85 per cent of adjusted earnings. The previous payout policy range was 60 per cent to 70 per cent.
Enbridge's annual dividend growth rate is expected, based on current planning, to average between 14 per cent and 16 per cent from 2015 to 2018.
Enbridge Income Fund Holdings Inc., which manages the fund, said it hadn't received a formal proposal from Enbridge but would form a committee of independent directors to assess it. It said Enbridge is aiming to complete the process by mid-2015.
The fund would acquire liquids pipelines assets worth about $16 billion plus $1 billion of renewable energy assets.
"If the proposal announced by Enbridge is completed, it would have the effect of transforming the fund into the largest midstream energy infrastructure organization in Canada and would provide the fund and EIFH with a substantial and visible source of growth in earnings and distributions," said Perry Schuldhaus, the fund's president.
Also Wednesday, Enbridge said its estimated 2015 adjusted earnings per share will be in a range between $2.05 and $2.35 per share.
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