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Energy Transfer - The 14% Yield Cash Machine

Published Sat, 30 May 2020 09:45:00 -0400 on Seeking Alpha

Energy Transfer has significant DCF which continues to support its lofty dividend of more than 14%.
At the same time, the company is evaluating capital spending reductions to become FCF positive starting next year. That’ll avoid the company needing to access the capital markets.
ET has an incredibly strong financial position due to its Jan. 2020 bond issuance. The bond market is already pricing in future strength for the company.
Our cash flow forecast shows ET generating significant shareholder returns. ET is a strong buy at the current price.
Co-produced with The Value Portfolio
Investing during a downturn involves making proactive decisions to separate quality companies from those that have the potential to drop further. Specifically, it's important to invest in companies that have been unfairly punished by the market, with strong cash flow and minimum risk. One of the companies that meet the mark is Energy Transfer (NYSE: ET). Energy Transfer is one of the largest midstream companies in the world, with a market capitalization of more than $20 billion.
The company has a dividend of over 14%, a secure dividend that it's reiterated support for several times since the start of the oil crash. As we'll see throughout this article, the company's long-term cash flow generation abilities make it a quality portfolio holding.

1Q 2020 Results
Energy Transfer recently announced its 1Q 2020 results.

Source: ET 1Q 2020 Investor Presentation
Energy Transfer managed to maintain record volumes and gathering. It also put Frac VII into service along with its Panther II processing plant. Together these volumes and gathering significantly supported the company's investment. The company turned this into $2.64 billion in adjusted EBITDA and $1.42 billion in Distributable Cash Flow ("DCF"). That's a 14% YoY DCF decline, but it's quite manageable by the company's business.
It's on a pace to earn more than $5.5 billion in annualized DCF with a... Read more