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Why Energy Transfer’s Distribution Yield Looks Attractive

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Feb. 26 2019, Updated 5:10 p.m. ET

Distribution yield

Energy Transfer (ET) offers a distribution yield of 7.9%, which is higher than its five-year average yield. The Alerian MLP ETF (AMLP) is also trading at a yield of 7.9%. Energy Transfer’s current yield looks attractive given the large spread of ~5%–6% compared to broader markets and the ten-year Treasury yield.

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Peers’ yields and growth

When compared with peers, Enterprise Products Partners (EPD) offers a yield ~6.2%, while Kinder Morgan (KMI) yields ~4.2%. MPLX (MPLX) yields 7.7%.

As earlier mentioned, Energy Transfer’s distributable cash flow came in at $1.52 billion in the latest reported quarter, a rise of 29% compared to Q4 2017. Its distributable coverage ratio was 1.90x, an increase from 1.66x in the fourth quarter of 2017.

Along with the yield, distribution growth also plays an important role when it comes to returns. Energy Transfer raised its distribution 13.4% compounded annually in the last five years, higher than many of its peers. EPD’s distribution growth was 5%, while KMI’s was -14% in the last five years. MPLX leads the pack with distribution growth of close to 20% in the same period.

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