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Energy Transfer: A 9% Yielder That's Growing And Safe

Published Tue, 10 Sep 2019 14:32:54 -0400 on Seeking Alpha

In my research on MLP's as investments, I always try to seek potential mispricing. So, stumbling upon Energy Transfer (ET) piqued my curiosity. The company is one of the larger MLPs and has a fat dividend yield of 9%. So, what could be causing this mispricing? For one, the company had a relatively complex structure that it had attempted to simplify in recent years. The most recent was a merger, completed in the latter half of 2018, between Energy Transfer Equity and Energy Transfer Partners (ET is the remaining entity) in order to strengthen the overall company's finances and remove expensive incentive distribution rights. Investors may still view the company with a certain amount trepidation especially since a past merger in 2016 of two of ET's subsidiaries burned investors with a "stealth distribution cut". However, it is in my view that the "clean-up" of ET's structure should be largely completed, which would give us investors the chance to fully evaluate the company's intrinsic value moving forward. As discussed in my previous articles on MLPs (here and here), I use Moody's methodology to go through the various key points when evaluating an MLP.

Source: Moody's Midstream Energy Rating Methodology Moody's Corporation (Registration required)
Background
ET is one of America's largest energy companies with assets reaching coast-to-coast, covering 38 states. The company's core operations include transportation, storage, and terminal for natural gas, crude oil, NGLs,... Read more