Energy Transfer Partner’s Distribution Yield against AMLP, Peers
Energy Transfer Partners’ distribution growth
Energy Transfer Partners (ETP) declared a distribution of $0.55 per common share for the second quarter of 2017, which represents a 10.0% YoY (year-over-year) rise over 2Q16 and a sequential rise of 2.8%. ETP expects to grow its distribution in the low double digits in the coming years while maintaining a distribution coverage greater than one. Its future distribution growth is dependent on the successful and timely completion of its organic projects and less volatility in commodity prices. Its earnings are impacted by crude oil, natural gas, and NGL (natural gas liquids) price volatility due to its high commodity exposure at midstream and commodities marketing businesses.
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Energy Transfer Partners’ distribution yield
Based on the recent quarter distribution, ETP is trading at a high distribution yield of 11.9% as of September 21, 2017. Its current yield is quite high compared to the last five-year, two-year, and one-year averages of 5.5%, 8.2%, and 9.2%, respectively. In comparison, its peers EnLink Midstream Partners (ENLK) and DCP Midstream Partners (DCP) are both yielding 9.6%. ETP’s distribution yield is higher than the Alerian MLP ETF’s (AMLP) at 8.0%.
ETP’s high distribution yield compared to the historical average and its peers might reflect undervaluation. At the same time, its high distribution yield reflects uncertainty in distribution growth considering its higher commodity price exposure, high leverage, and expected decline in distribution coverage, which was 1.18x at the end of the second quarter of 2017. It might fall in the coming quarters due to project delays, dilution from the recent $1.3 billion equity offering, and the expiration of IDR (incentive distribution rights) subsidies from Energy Transfer Equity (ETE) after 2017.