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Why did Enbridge's shares get hammered this week?

Sometimes, it's not what a company says, but what it doesn't say, that gives investors fits.

On Thursday, in a marked departure from previous earnings reports, Enbridge made no mention in its third-quarter news release or conference call about its previously announced plans to raise its dividend by 10 per cent to 12 per cent annually through 2024.

The omission of such a key platform immediately caught the attention of analysts, one of whom asked Enbridge chief executive Al Monaco if the company is planning to "temper" its dividend growth in the short term to free up capital or pay down debt.

Mr. Monaco was non-committal. He said it would be premature to answer the question because the company is "right in the throes of putting together our [financial] plan," details of which will be announced at Enbridge's annual investor conference scheduled for Dec. 12 in New York and Dec. 13 in Toronto.

The lack of clarity on the dividend only compounded investors' disappointment with Enbridge's third-quarter results, as available cash flow from operations (ACFFO) of 82 cents a share missed analyst estimates by about a nickel.

As if this weren't enough bad news, investors were already biting their fingernails over the fate of Enbridge's massive Alberta-to-Wisconsin Line 3 replacement pipeline, which is facing environmental opposition in Minnesota.

For some shareholders, the uncertainty was too much to bear. In a sell-off that had all the hallmarks of a capitulation, Enbridge's shares fell 4.8 per cent on unusually heavy volume, bringing their year-to-date loss to about 17 per cent.

Does Enbridge have some short-term problems? Absolutely. Is the company doomed? Hardly.

Now that the dust has settled, let's put this week's events into perspective.

First, even as its third-quarter results fell short, the company still confirmed its previous full-year ACFFO guidance of $3.60 to $3.90 a share. Management said it expects a "significant uptick" in fourth-quarter ACFFO per share, citing higher volumes on its mainline pipeline and $5-billion of projects coming online in the final three months of the year, among other factors.

Second, even if Enbridge does back away from its previous dividend growth guidance, some analysts aren't expecting anything dramatic.

"If there is a potential change in dividend policy coming (and we think that 'if' is still in question), we believe that the decision is between a more moderate growth rate in the 8- to 10-per-cent range versus the current 10- to 12-per-cent guidance," RBC Dominion Securities analyst Robert Kwan said in a note.

"To be clear, we would be shocked if the company unveiled a 'no dividend growth for 2018' scenario let alone a dividend cut," added Mr. Kwan, who reiterated his "outperform" rating on the shares but trimmed his price target to $63 from $64. Enbridge closed Friday at $46.85.

Slowing the dividend growth rate would free up cash to fund Enbridge's capital projects while improving the company's "already conservative" payout ratio, estimated at about 62 per cent of ACFFO in 2018, assuming a 10-per-cent increase in the dividend, Mr. Kwan said.

But Mr. Kwan and other analysts said Enbridge has other levers it could pull to help fund its $31-billion capital program for 2017-19 while also maintaining its "strong investment grade credit ratings" – a goal the company said is a priority. One option is to sell non-core assets, Mr. Monaco said on the call, noting that the company now has a larger inventory to choose from following its $37-billion merger earlier this year with U.S.-based Spectra Energy Corp.

"If there are assets that are going to attract good value and we can redeploy that capital back into the business, then we're going to do that," Mr. Monaco said.

Further enhancing its financial flexibility, Enbridge continues to have access to capital markets – for example, it has raised about $3-billion in "hybrid" debt-equity securities since the end of the second quarter – and the company's cash flow is growing as new projects come online.

All of this leads some analysts to believe that the dividend guidance will ultimately be maintained once Enbridge finalizes its long-term funding plans.

"We like the shares and believe the sell-off is overdone," Scotia Capital analyst Robert Hope said in a note in which he maintained his "sector outperform" rating but dropped his price target to $61 from $62. "We expect the company to maintain its commitment to its prior dividend guidance."

As an Enbridge shareholder myself – I own the stock personally and in my Yield Hog Dividend Growth Portfolio (view it online at tgam.ca/dividendportfolio) – I'm not throwing in the towel just yet. But I'll need to see some clarity on the dividend, because if there's one thing we investors hate more than anything, it's uncertainty.

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