uploads/2018/03/SUN.jpg

Analyzing Sunoco’s High Distribution Yield

By

Updated

Sunoco’s yield

Sunoco (SUN) is trading at a high distribution yield of ~11.7%. It paid a distribution of ~$0.83 per share in 4Q17, which was the same as the previous quarter. It hasn’t increased its distribution for six quarters. Sunoco’s distribution coverage ratio for 4Q17 was 1.03x. The ratio was 1.15x for 2017. The company’s high leverage is a key concern for investors. Sunoco’s debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) at the end of 4Q17 was 5.6x.

Article continues below advertisement

Sunoco divested a vast majority of its convenience stores to 7-Eleven for $3.2 billion in 2017. That helped it reduce its debt burden. Sunoco redeemed the Series A preferred shares held by Energy Transfer Equity (ETE) for $313 million and repurchased 17 million common shares from Energy Transfer Partners (ETP) for $540 million in January 2018.

You can find out how the repurchase of shares from ETP could impact ETP in SUN’s Repurchase Agreement Could Impact ETP’s Stock Performance.

Analyst recommendations for SUN

Of the analysts surveyed by Reuters, 65% of them rate Sunoco a “hold,” 29% rate it a “buy,” and the remaining 6% rate it a “sell.” The mean price target for Sunoco is $32.20. Its shares are trading at $28. If Sunoco attains its mean price target in a year, it would mean an upside of 15%.

In comparison, 75% of analysts surveyed by Reuters rate Energy Transfer Partners a “buy,” and the remaining 25% rate it a “hold.”

Next, let’s look at NuStar Energy (NS), another MLP trading at a high yield.

Advertisement

More From Market Realist