Enbridge Inc. acquires gas utilities from Dominion Energy
Enbridge Inc., a Canadian energy company, has announced its acquisition of three gas utilities from Dominion Energy for $19 billion CAD. The utilities include East Ohio Gas Company, Public Service Company of North Carolina, and Questar Gas. This acquisition comes just weeks after Enbridge stated that it would not be making any large purchases. The transaction is expected to increase Enbridge’s leverage, but the company believes that the diversification benefits and higher contribution from low-risk utility businesses will offset this. Enbridge has a strong track record of delivering growth and maintaining steady dividends, but some investors are skeptical of the expensive acquisition and the company’s decision to issue equity rather than buying back shares.
Enbridge’s acquisition strategy and the risks involved
Enbridge’s acquisition of the gas utilities from Dominion Energy is part of its strategy to expand its portfolio and increase its presence in the gas distribution segment. While gas distribution is considered a lower risk segment, the cost of capital is rising, and Enbridge’s decision to issue expensive equity raises concerns among investors. Additionally, the company’s promise of 5% medium-term growth may be difficult to achieve with the new acquisition. However, Enbridge’s existing assets, which generate inflation-protected cash flows, provide some stability to the business. The company’s credit profile is expected to remain stable, but the risk of a severe recession and the rating agencies’ response to the acquisition are factors to watch.
Investor outlook on Enbridge and Dominion Energy
Despite some skepticism, Enbridge’s stock is still considered attractive by many investors. However, they believe that the company needs to focus on reducing its leverage ratio over the next three years. Dominion Energy, on the other hand, has had a poor return over the last decade and has sold assets to pay off debt, which has helped derisk the business. Investors see value in Dominion Energy’s stock, especially with its 16% yield and the potential for a flattish price. As interest rates rise, utilities may face pressure, but investors can play defensively by using longer-dated covered calls. Overall, investors are advised to do their own due diligence and consult with professionals before making any investment decisions.
Keywords: Enbridge Inc., Dominion Energy, gas utilities, acquisition, leverage, gas distribution, inflation-protected cash flows, credit profile, interest rate hikes, stock, investors, due diligence.
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