Analyzing Energy Transfer’s Premium Distribution Yield

Currently, Energy Transfer (ET) is trading at a distribution yield of 8.5%, which is higher than its historical average yield of 6.8%. In comparison, the Alerian MLP ETF (AMLP) offers a yield of 8.1%. Energy Transfer’s current yield represents a spread of more than 600 basis points compared to the benchmark ten-year Treasury yield.

Energy Transfer reported a distributable cash flow of $1.66 billion—an increase of 39% compared to the first quarter of 2018. The company’s distribution coverage ratio was 2.07x. Energy Transfer’s management sees annual long-term distribution coverage of ~1.7x–1.9x.

Energy Transfer appears to be placed better compared to its peers based on the distribution yield. Enterprise Products Partners (EPD) offers a distribution yield of 6.1%, while Kinder Morgan is trading at a yield of 5.3%.

Energy Transfer’s yield rose sharply in the first quarter of 2016. The stock witnessed a big fall in the second half of 2015.

Along with a higher yield, distribution growth also plays a vital role in terms of the total returns. Energy Transfer raised its distribution 13.4% compounded annually in the last five years—higher than many of its peers. Enterprise Products Partners’ distribution growth was 5%, while Kinder Morgan’s was -14% in the last five years.