Quill,
Let’s run a thought experiment.
Buy 727 shares of ET at its after-market price on Dec 22 of $13.84 and 277 shares of ENB at its after-market price on the same day of $36.22. Your cost for ET will be $10,061.68. For ENB, $10,069.16. That puts both “horses” at the starting gate with a non-material difference in total costs. Now, do this. Collect the reported forward dividend for each one and spend the monies received at the grocery store.
So, let’s see. If ET’s forward div is a lowly $1.25, then the total dividend amount received from your 727 shares will be an underwhelming $908.75. Whereas ENB’s foward div is a fat $2.69 and the total amount received from your 277 shares will be a very fat $745.13. Opps. You’ve just done the financial equivalent of trading elephants for rabbits unless you want to claim that $745 dollars buys more groceries than $908 and change.
Is ET the better stock to buy than ENB when all things are considered, such as potential cap gains? Who knows? BUT DIV YIELD DOES MATTER, and it should not be ignored just because the math is so hard to do. (NOT!)
Here’s Part Two of this thought experiment.
Yahoo Finance will back in divs received on a stock to calculate an ‘adjusted price’. So, let’s run another horse race matching ET against ENB. Five years ago, on Christmas Eve, ET’s adjusted closing price was $7.42 vs last Fdiday’s adjusted closing price of $13.76. Well, let me see. That looks a bit as if an investor in ET would have nearly doubled his or her money.
So, how did ENB do? On that same Christmas Eve Day five years ago, ENB’s adjusted closing price was a whopping, astounding, attention-getting $29.22 vs its adjusted closing price last Friday of $36.06.
Opps. Once again, an “elephants for rabbits” trade has been done. Not only does present-day ET offer a better dividend yield than ENB, its past ‘total gains performance’ has been far better. (I’ll leave it as an exercise for you to figure out by how much ENB underperformed ET. )
But now comes the question that really matters. Which stock --if either-- makes the better bet going forward? Without digging into their fundamentals, I couldn’t say. You guess is that ENB will do better on a price-gains basis, and that’s a judgment I’d defer to, given that you’re a savvy, experienced trader who follows markets closely. But don’t try to argue that ENB should be chosen because it pays the better dividend. It doesn’t, and it never has.
Charlie
