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Analyzing ETE and WMB’s Dividend Profiles

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Dividend profile

Energy Transfer Equity (ETE) paid a distribution of $0.31 per unit for the third quarter, which represents an annualized distribution of $1.22 per unit for 2018—an increase of 6% year-over-year. In comparison, Williams Companies (WMB) paid a dividend of $0.34 per share, which implies an annualized dividend of $1.36 per share. The dividend growth is more than 13% year-over-year.

Currently, Energy Transfer Equity is trading at a yield of 7.1%, while Williams Companies offers a dividend yield of 4.8%. In comparison, the Alerian MLP ETF (AMLP) is trading at a yield of 7.6%.

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Dividend outlook

The above chart shows Energy Transfer Equity and Williams Companies’ historical dividend yields. The spurt in the yields during early 2016 is when stock prices fell to multiyear lows and crude oil touched its lowest point.

Williams Companies expects 10%–15% annual dividend growth over the next year. Energy Transfer Equity’s long-term distribution growth could depend on the timely completion of its organic projects.

Valuation

Williams Companies is trading at a forward EV-to-EBITDA valuation of 12.5x, while Energy Transfer Equity is trading at a forward EV-to-EBITDA of 10x. However, Energy Transfer Equity’s valuation could be misleading given its pending merger with Energy Transfer Partners (ETP).

Next, we’ll discuss where these midstream stocks might go in the near future.

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