uploads///SEPs forward distribution yield

SEP Trades at a Lower Yield than Its Historical Average


Jan. 1 2016, Updated 10:06 a.m. ET

SEP’s forward distribution yield

Spectra Energy Partners (SEP) trades at a forward distribution yield of ~5.7%. This is lower compared to its five-year average forward distribution yield of 6.2%. The rise in Spectra Energy Partners’ yield since mid-2015 is in-line with the broader midstream energy sector.

Low commodity prices have pushed yields up for most of the companies in the energy sector. The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per unit by its market price per unit.

The Alerian MLP Index (AMZ), an index of the top midstream MLPs, currently trades at a yield of ~8.5%. The above graph displays Spectra Energy Partners’ historical distribution yields and its five-year average. SEP forms 2.8% of the Alerian MLP ETF (AMLP), an ETF of top infrastructure MLPs.

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SEP’s EV/EBITDA multiple

Spectra Energy Partners’ forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11 is lower than its three-year historical average of 12.8. The enterprise value of a company is roughly the market value of its debt and equity less its cash holdings.

The EV-to-EBITDA ratio is neutral to capital structure, as it takes into account a company’s debt and equity. A lower ratio may indicate a possible undervaluation. Spectra Energy Partners’ forward EV-to-EBITDA multiple is also lower than its trailing-12-month EV-to-EBITDA multiple of 12.9.

EnLink Midstream Partners (ENLK), Enterprise Products Partners (EPD), ONEOK Partners (OKS), and Spectra Energy (SE) are other companies with midstream operations. In the next part, we’ll see how Spectra Energy Partners’ forward yield and EV-to-EBITDA multiple compare with its peers.


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