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What’s behind Enbridge Energy Partners’ Attractive Yield?

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Mar. 8 2018, Published 11:36 a.m. ET

EEP’s yield

With a yield of 11.1%, Enbridge Energy Partners (EEP), the MLP subsidiary of Enbridge (ENB), is trading at a yield close to Buckeye Partners (BPL), which we looked at in the previous part of this series. Sunoco (SUN) is trading at a yield of ~11.7%. Enbridge Energy Partners paid a distribution of $0.35 per share in 4Q17, the same as the previous quarter. Enbridge Energy Partners’ coverage ratios for 4Q17 and 2017 were 1.3x and 1.22x, respectively.

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Enbridge Energy Partners’ 4Q17 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) fell 8.3% year-over-year. The year-over-year fall was driven by the sale of EEP’s Ozark pipeline system, the divestment of its natural gas business, and a decline in its throughput volumes along its North Dakota system.

Distribution cuts, high leverage, and lower earnings severely impacted Enbridge Energy Partners stock over the last three years. The stock’s fall has pushed its yield up.

Guidance

Enbridge Energy Partners may be required to reduce the income tax allowance component of the tolls in certain projects regulated by the FERC (Federal Energy Regulatory Commission) due to the change in the corporate tax rate. The company expects it to impact its 2018 DCF (distributable cash flow). EEP revised its 2018 DCF guidance to $720 million–$770 million from the previously announced $775 million–$825 million. It also expects its coverage ratio for 2018 to fall to ~1.15x from the earlier guidance of ~1.2x.

Analyst recommendations for EEP

Of the analysts surveyed by Reuters, 66.7% of them have rated Enbridge Energy Partners a “hold,” 16.7% have rated it a “buy,” and the remaining 16.7% have rated it a “sell.” The mean price target of $15.90 implies a return of 26% in a year from EEP’s current price of $12.60.

We’ll look at Sunoco’s high yield in the next part of this series.

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