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ETE’s Distribution Yield Fell, but It’s Still above 2018 Lows

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Apr. 25 2018, Updated 6:32 a.m. ET

ETE’s distribution yield

Energy Transfer Equity (ETE) was trading at a distribution yield of ~7.7% on April 20. The recent surge in ETE’s stock price resulted in a decline in the general partner’s distribution yield. However, ETE’s current yield is still above its 2018 lows and historical averages. 

ETE’s current yield is higher compared to its respective three-year and five-year averages of ~7.0% and ~5.5%. However, it’s still lower than the Alerian MLP ETF (AMLP), which was trading at a yield of 8.2% on April 20.

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ETE’s distribution yield is significantly higher than the ten-year US Treasury yields (~3.0%), utilities (~3.5%), and broader US markets (~1.9%). ETE’s higher yield compared to utilities and the broader markets reflect sector-specific and company-specific risks. The company-specific risks include high leverage, commodity price exposure, and project delays resulting from regulatory hurdles and environmental concerns.

What does ETE’s current yield reveal?

ETE’s current yield looks attractive after its resumption of distribution growth in the last few quarters. The GP declared a distribution of $0.305 per unit in 4Q18, which represented a 3.4% increase compared to 3Q18. 

This distribution growth could continue in the coming quarters, supported by distributable cash flow growth resulting from the removal of IDRs subsidies and distribution growth at Energy Transfer Partners (ETP). However, ETE’s low coverage, project delays, and a high cost of equity at ETP are among the concerns.

Currently, there doesn’t seem to be a chance of distribution cuts or the simplification of the capital structure at Energy Transfer Equity in the near term, which makes its current distribution yield look attractive.

In the next article, we’ll look into Energy Transfer Equity’s other valuation metrics.

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