SE Trades at a Low Forward Yield Compared to Its Peers



Spectra Energy’s forward yield

As we learned in the previous part of this series, Spectra Energy (SE) is trading at a high yield compared to its historical average. However, the stock is trading at a low yield compared to its peers.

Spectra Energy trades at a forward dividend yield of 5.6%. In comparison, Kinder Morgan (KMI), Williams Companies (WMB), and Enterprise Products Partners (EPD) trade at forward yields of 10.3%, 7.5%, and 6.5%, respectively. The graph above compares the forward yields of the four companies relative to their expected dividend growths.

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SE’s expected dividend growth

Spectra Energy’s expected dividend growth over the next two years is higher compared to KMI and EPD. This likely justifies its relatively low forward yields.

WMB’s relatively high yield, despite higher expected dividend growth, is likely attributed to the stock price’s reaction to its merger announcement with Energy Transfer Equity (ETE). Uncertainties relating to its performance post-merger may also be contributing to its higher yield.

EV/EBITDA multiple

Spectra Energy is trading at a trailing-12-month EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.7. In comparison, KMI, WMB, and EPD are trading at EV/EBITDA multiples of 13.6, 20.1, and 14.0, respectively.

As for forward multiples, SE trades at a forward EV/EBITDA of 11.7. KMI, WMB, and EPD trade at forward EV/EBITDA ratios of 11.5, 12.8, and 12.9, respectively.

Lower forward ratios indicate expectations of EBITDA growth for KMI, WMB, and EPD. On the other hand, based on its forward multiple, SE’s 4Q15 EBITDA is expected to be flat. This also explains its relatively low current EV/EBITDA multiple. Spectra Energy forms ~1.1% of the iShares North American Natural Resources ETF (IGE).

In the next part, we’ll analyze the key factors that impact Spectra Energy’s stock price in the long run.


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