Top MLPs offering high yields
Among the MLPs that are currently trading at yields above 8%, Energy Transfer (ET) is the largest by market capitalization. Energy Transfer is currently trading at a yield of ~8.2%. It is followed by MPLX (MPLX), EQM Midstream Partners (EQM), and Tallgrass Energy (TGE), which all offer yields above 8%. Andeavor Logistics (ANDX) is trading at a yield of 11.7%, but it will be acquired by MPLX in the second half of 2019.
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Energy Transfer’s yield
Energy Transfer has historically traded at a higher yield than its peers Enterprise Products Partners (EPD) or Magellan Midstream Partners (MMP). Energy Transfer’s average yield since October 2018, when Energy Transfer Equity and Energy Transfer Partners’ merger was completed, is 8.1%. The company’s history of a complex structure, distribution cuts, and aggressive financial practices increases investors’ risk perception for the stock.
Energy Transfer stock has underperformed its midstream peers so far in 2019. It has risen ~13%, similar to that of the Alerian MLP ETF (AMLP). In comparison, Kinder Morgan (KMI) and Enterprise Products Partners are up ~30% and 16%, respectively. Energy Transfer stock has underperformed its peers despite strong earnings growth in recent quarters.
Roughly 53% of the analysts surveyed by Reuters have rated Energy Transfer as a “strong buy” and 37% rated it as a “buy.” 10% of the surveyed analysts rated it as a “hold.” The median price target for Energy Transfer is $21, which implies an upside potential of 42% from its current price. On May 10, Stifel raised its price target for Energy Transfer from $20 to $22.
EQM Midstream Partners (EQM), the MLP of Equitrans Midstream (ETRN), is trading at a yield of 10.4%.
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