ETP Announced Flat Distribution in 4Q17: How It Impacts ETE



Distribution growth

Energy Transfer Equity (ETE) continued distribution growth for the second consecutive quarter after seven quarters of flat distribution. The MLP GP (general partner) declared a distribution of $0.305 per unit for 4Q17, which represents a $0.01 per unit (or 3.3%) increase compared to the previous quarter.

Based on the recent distribution, ETE is trading at an attractive distribution yield of 7.1%. ETE’s peers Williams Companies (WMB) and Kinder Morgan (KMI) expect to resume distribution growth in 2018.

Energy Transfer Partners (ETP) declared a flat distribution of $0.565 per unit for 4Q17. ETP’s annual distribution in 2017 is lower than the low-double-digit near-term targets announced during the ETP-SXL merger. The 4Q17 distribution represents an 8.7% YoY increase compared to 4Q16.

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Based on the recent distribution, ETP is trading at an attractive distribution yield of 12.1% from an investor’s standpoint. However, this remains a concern for the partnership as it continues to trade at a high yield despite distribution growth in recent quarters. High yields generally result in a high cost of equity capital.

Coverage ratio

The flat distribution at ETP, combined with highest IDR (incentive distribution rights) subsidies to Energy Transfer Partners, is expected to have an impact on Energy Transfer Equity’s cash flow growth and coverage ratio during the fourth quarter. This might be offset by higher distribution income resulting from equity issuances at ETP.

Moreover, the GP is expected to benefit from the removal of IDRs subsidies after 4Q17. This would impact Energy Transfer Partners’ coverage ratio next year. However, the limited partnership is expected to partially offset these declines through the placement of major organic projects.

In the next article, we’ll look at the points that would likely be watched during Energy Transfer’s 4Q17 earnings.


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