Acquisitions Look to Bolster This Dividend Giant's Yield
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Energy Transfer Equity (NYSE: ETE) is one of the largest publicly traded master limited partnerships ın the market. The company has several cash generating assets under its umbrella. Most assets are centered upon midstream growth in major natural gas, oil, and natural gas liquid development areas. The company holds the general partner and 100% of the incentive distribution rights of Energy Transfer Partners (NYSE: ETP). It owns approximately 52.5 million of the partnership’s limited partner units. The company also holds 100% of the Incentive Distribution Rights of Regency Energy Partners (NYSE: RGP). In addition, Energy Transfer Equity owns approximately 26.3 million of Regency’s limited partner units. The Energy Transfer Partners and Energy Transfer Equity jointly have an indirect 40 percent and 60 percent equity interest in Sunoco and Southern Union, as well.
Energy Transfer Equity paid flat quarterly distributions in the recent 5 quarters. The quarterly distributions stood at 0.625 at the end of Q2 of FY2012. Energy Transfer Equity management has successfully completed its previously announced acquisitions. These acquisitions look to flourish the distributions in the upcoming quarters. Income investors should be compensated with the high quarterly distributions. I predict the quarterly distribution will start growing at the end of Q2 or Q3 of FY2013.
I will walk you through the evaluation that encourages my opinion by examining Energy Transfer Equity’s distributable cash flow. I will also examine its peers to see where the master limited partnership stands compared to its peers.
Distributable Cash Flow
Energy Transfer Equity is deriving its principal source of cash flow from the direct and indirect investments. Energy Transfer Equity major distributions arrive from the limited and general partner interests in Energy Transfer Partners and Regency Energy Partners. In addition, its distribution depends on the cash flow produced from its entirely possessed subsidiary, Southern Union. Southern Union was acquired on March 26.
Energy Transfer Equity needs cash for the general and administrative expenses, and for the debt service requirements. Whatever amount left from these outflows is distributed as cash distributions to the unit holders.
The above chart demonstrates serious concerns on the performance of its subsidiaries. Energy Transfer Partners is paying flat quarterly distributions for the 16 consecutive quarters. Energy Transfer Partners cash distributions stood at 89.4 cents at the end of Q2 of FY 2012. The total annual cash distributions stood at $3.575 per share. The stock has an annual trailing yield of 8.48%.
Regency Energy Partners
Regency Energy Partners is a perfect complement to the asset base. This partnership provides midstream services to the rich gas formations and active shale plays. These locations involve the Haynesville, Barnett, Eagle Ford, Marcellus shale, and Fayetteville.
The stock currently yield is 7.7 percent with a 46 cent quarterly dividend. Regency should deliver additional revenues as the key generation areas need further midstream operations. These include transportation, storage, and pipeline services. Regency Energy Partners has an annual distribution of $1.71 in 2008. In the last 4 years, cash distribution improved by only 8 cents to $1.79.
I believe the management team introduced two essential strategic decisions to boost revenues and distributions. Energy Transfer Equity has acquired Sunoco. Sunoco has 34 percent of Sunoco Logistics Partners shares. Sunoco Logistics Partners runs the pipelines and product terminals. Secondly, the Energy Transfer Equity released a plan to drop down its interest in the Southern Union Company.
Energy Transfer Equity main industry peers are Williams Partners (NYSE: WPZ) and Enterprise Products Partners (NYSE: EPD). Energy Transfer Equity operates a different business model over its peers. It generates its cash flow from the group of its subsidiaries. Energy Transfer Equity cash inflow depends on the performance of its subsidiaries. Each subsidiary has its own separate entity.
Separate entity concept presents the picture in favor of Parent (Energy Transfer Equity). Parent generates its distributable cash flow from the revenue of its subsidiaries. However, Enterprise Products Partners and Williams’s partners are liable for their own distributable cash inflow. Enterprise and Williams have a high yield of 4.66% and 5.90%. They are also performing well in the industry. Both companies have experienced high growth rate in their distributions.
Energy Transfer Equity shareholders will collect higher dividends when the majority of new projects operate. Energy Transfer Equity management looks aggressive. The management is strongly chasing business interests to generate value for shareholder and higher cash flow for income investors.
Energy Transfer Equity distributable cash flow will grow after the next two quarters. I believe 2013 will be like a “Dawn” for Energy Transfer Equity cash distribution seekers. New acquired groups will start making inflows in the Energy Transfer Equity cash distributions. In addition, Energy Transfer Equity and Energy Transfer Partners capital expenditures are likely to be lower. The distributions of the whole group stayed flat mainly due to the implementation of an outstanding business expansion plan. Once the plan starts bearing its fruits, the distributions are likely to be higher.
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The surge in oil and natural gas production from hydraulic fracturing and horizontal drilling is creating massive bottlenecks in takeaway capacity. However, this problem for producers creates a massive and immensely profitable opportunity for midstream companies. Energy Transfer Partners helps alleviate the gluts in supply with 23,500 miles of transformational pipelines. To see if ETP and its industry-leading yield will be a fit for you, click on this detailed premium report, which will supply you with a thorough analysis of this attractive midstream.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Enterprise Products Partners L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.