From the DividendInvestor news file this week:

Amgen AMGN raised its quarterly dividend by 10%, increasing its quarterly payout to $1.94 from $1.76 for the dividend that will be paid on March 8, 2022. Based on the new annual dividend rate of $7.76, the stock yields 3.8% as of today's closing price. Omnicom OMC and Verizon VZ both declared quarterly dividends this week that were unchanged from their previous payouts.

Please see new analyst notes and updates below from Morningstar Research Services for Enbridge ENB, ExxonMobil XOM, and Pfizer PFE.

Also this week -- as detailed in Wednesday's trade alert, George Metrou trimmed the portfolios' stakes in Pfizer.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor

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News and Research for Dividend Select Portfolio Holdings

Canadian Energy Regulator Rejects Enbridge's Mainline System Long-Term Contracting Arrangement
by Stephen Ellis | Morningstar Research Services LLC | 11-29-21

The Canadian Energy Regulator (CER) has rejected Enbridge's proposed shift to long-term contracts from a monthly nominating system for the Mainline system. While we had expected the CER to accept Enbridge's proposal, ultimately, we do not believe the shift has a material impact on Enbridge's fair value estimate, as historically the pipeline utilization has been over 90% and in apportionment at times. Thus, we wouldn't expect any material differences in the rates achieved over time under any new contracting approach with the strong demand. However, maintaining the monthly nomination system introduces a level of uncertainty that wouldn't exist with long-term contracts because the barrels could potentially shift between competitors' pipes as new capacity comes online. The Canadian pipeline export capacity has historically been extremely undersupplied, and we don't expect that to change going forward, which means Enbridge's pipes will remain full or nearly full, in our view. With the minimal financial impact, we do think the increased uncertainty over future returns supports our narrow moat to some extent. Still, the bulk of this impact for this decision is that it reflects a black eye for Enbridge's management team in terms of managing its regulatory and stakeholder relationships over the multiyear timeframe that the application was under consideration by the CER and in preparation to submit the proposal. In response, Enbridge plans to re-engage with stakeholders and customers to pursue a new incentive contract structure or a cost of service contracting structure. Enbridge will submit a cost-of-service application to the CER while these discussions take place and expects a decision in 2023.

Exxon's Latest Plan Maintains Capital Discipline; Earnings Growth, Cash Return Potential Unrivaled
by Allen Good, CFA | Morningstar Research Services LLC | 12-02-21

ExxonMobil helped allay fears about capital discipline by extending its prior annual capital spending guidance of $20 billion-$25 billion another two years to 2027. The company refrained from giving precise 2022 spending guidance, but it will fall within that range, marking an increase from the anticipated $16 billion in 2021, given an increase in upstream development and resumption of downstream and chemical projects that were put on hold in 2020. However, higher 2022 capital spending was largely expected, leaving the extension to 2027 the important takeaway.

Despite the lower spending relative to plans prior to 2020, Exxon still expects to double earnings from 2019 levels by 2025 and double cash flow by 2027 on a combination of structural operating cost reductions, portfolio improvement, and growth across its upstream, downstream, and chemical segments. It also reintroduced a return target, anticipating return on capital employed to improve to 14% in 2025 and 17% in 2027. Production volumes will remain flat through 2025 before increasing to 2027 on new project startups.

Exxon estimates that under the current plan, including the cost savings and portfolio high-grading, at $60/barrel oil (our midcycle assumption) it will generate about $100 billion in surplus cash, after funding investment and paying the dividend, during the next five years. As such, we expect its current repurchase program of $10 billion over the next 12-24 months to be just the beginning. Dividend growth will also occur but will likely be modest in the near term, given Exxon's relatively high yield (6%) and payout ratios.

This combination of potential earnings growth and cash return is unrivaled elsewhere in the sector. Given this and a nearly 25% discount to our fair value estimate, we continue to see Exxon as the best option among the integrated oils.

Omicron Variant Could Require Its Own Vaccine, but We're Cautious on mRNA FVEs, Given Limited Data
by Karen Andersen, CFA | Morningstar Research Services LLC | 11-29-21

We're not making any changes to our fair value estimates for the leading global COVID-19 vaccine makers -- Pfizer, BioNTech, and Moderna -- following reports of the new omicron variant, as we see significant uncertainty around the profile of this new variant and whether it will require any additional shots beyond what is already included in our model. We already broadly include third-dose booster shots of these mRNA vaccines in our valuations, followed by annual shots for more vulnerable populations (infants and adults older than 65). While Pfizer's broad biopharma portfolio continues to support a wide moat, we think Moderna and BioNTech are still in the process of building sustainable competitive advantages, given the uncertainty around the future spread of COVID, the applicability of mRNA technology to other vaccines and treatments, and defense against similar or improved competing technologies.

Pfizer/BioNTech and Moderna have disclosed some information on strategies and timelines until a new vaccine could be developed, and we estimate that a new vaccine could be available targeting the omicron variant in six months, if necessary. On Nov. 26, the World Health Organization designated the latest COVID-19 variant, B.1.1.529 (now omicron), a variant of concern due to a large number of mutations and preliminary data pointing to potential transmission and immune escape advantages over other variants. BioNTech has said that we should know more about the efficacy of the currently available vaccines against omicron in a couple of weeks, following completion of some lab tests of the ability of antibodies from the vaccine to neutralize the new variant. Established manufacturing capacity -- which is poised to reach 4 billion doses annually at Pfizer/BioNTech and perhaps 3 billion annually at Moderna (depending on dosage) -- could be easily switched to a new variant vaccine, as raw materials and manufacturing processes remain the same.

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