Sunoco’s 12% Yield: Management Expects to Sustain Distributions

Sunoco’s yield

Energy Transfer’s (ET) MLP subsidiary, Sunoco (SUN), is trading at a high yield of 12%. The company maintained a distribution of 82.55 cents per unit in the third quarter of 2018. The company’s distribution coverage ratio for Q3 was 1.73x, and it was 1.24x for the trailing 12 months.

During the company’s third-quarter earnings call, Joseph Kim, Sunoco’s president and CEO, noted, “We remain confident in our ability to sustain our distributions while still having excess cash that can be used for growth opportunities.”

Sunoco’s 12% Yield: Management Expects to Sustain Distributions

Sunoco hasn’t raised its distributions for the last nine quarters. As the above graph shows, Sunoco has fallen ~7% year-to-date, outperforming the Alerian MLP ETF (AMLP).

Sunoco’s convenience store sale to 7-Eleven in 2017 improved its leverage. Sunoco’s net-debt-to-adjusted EBITDA ratio was 4.27x at the end of Q3 2018. On November 15, Sunoco announced an acquisition of refined products terminals from American Midstream Partners (AMID) for $125 million.

Analysts’ recommendations

Of the 13 Reuters-surveyed analysts covering Sunoco, one rated it a “strong buy,” three rated it a “buy,” eight rated it a “hold,” and one rated it a “sell.” Sunoco’s median price target is $31, which implies an upside potential of 16% in a year from Sunoco’s current price.

MPLX (MPLX) stock is trading at an attractive yield of ~7.5%. Let’s discuss it next in this series.