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Energy Transfer Equity’s 7% Distribution Yield Looks Attractive

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Dec. 4 2020, Updated 3:53 p.m. ET

Distribution yield

Energy Transfer Equity (ETE) was trading at a distribution yield of 6.9% as of July 11. The recent increase in Energy Transfer Equity’s stock price caused a slight decline in its distribution yield. However, Energy Transfer Equity’s current yield is still above the five-year historical average. Energy Transfer Equity has increased its distribution 25% over the past five years. Energy Transfer Equity kept its distribution flat at $0.3050 per unit during the first quarter after two consecutive quarters of distribution growth.

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What does the current yield tell?

Energy Transfer Equity might not increase its distribution in the remaining three quarters of 2018 after flat distribution in the first quarter—mainly due to its high leverage. At the same time, the future distribution looks safe considering its strong distribution coverage. Energy Transfer Equity’s current distribution yield looks very attractive.

Energy Transfer Equity’s distribution coverage was 1.5x by the end of the first quarter. Energy Transfer Equity’s distribution coverage improved significantly in the first quarter following the removal of IDRs subsidies to Energy Transfer Partners (ETP). Any equity issuance at Energy Transfer Partners to fund its massive capital program for 2018 could drive Energy Transfer Equity’s distributable cash flows and coverage.

Crude oil’s price volatility and some other company-specific issues including negative updates on Energy Transfer Partners’ major projects might continue to cause Energy Transfer Equity’s distribution yield to fluctuate. However, Energy Transfer Equity’s distribution yield shouldn’t fall below the historical average considering the GP’s high leverage and uncertainties related to simplifying the ownership structure.

Next, we’ll analyze Energy Transfer Equity’s relative valuation.

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