Yahoo Finance Why Energy Transfer Trades at a Higher Forward Yield than Its Peers
ETE, EPD, WMB, and KMI: Are They Prepared for Tougher Times?
ETE’s forward yield
The prolonged challenging commodity price environment and the volatility in the midstream energy stocks have resulted in abnormal yields and dividend growth expectations. Energy Transfer Equity (ETE) is additionally facing the negative investor sentiments toward its pending merger with Williams Companies (WMB).
The two stocks have lost more than 60% since the announcement of a merger in September 2015. Uncertainties surrounding the pending merger contributed to ETE’s and WMB’s 48% and 35% respective declines since the start of 2016.
The fall in the ETE and WMB stock prices pushed their forward yields higher. The forward dividend yield of a company is calculated by dividing its estimated one-year future dividend per share by its market price per share.
As the above graph shows, Williams Partners (WPZ) and Energy Transfer Partners (ETP) also trade at higher forward yields compared to others. The two MLP subsidiaries fell along with their parent companies.
Kinder Morgan (KMI), which slashed dividends by 75% in 4Q15, is expected to have negative dividend growth compared to fiscal 2015.
EPD’s yield
Enterprise Products Partners’ (EPD) forward yield is nearly 6% lower compared to the average of selected peers in the above graph. EPD’s consistent distribution growth, reasonable leverage, strong coverage, and simple structure with no incentive distribution rights contribute to its relatively lower yield.
EPD forms ~1.5% of the Multi-Asset Diversified Income ETF (MDIV). MDIV invests nearly 17% of its portfolio in MLPs.
EV-to-EBITDA multiples
ETE, EPD, WMB, and KMI are currently trading at trailing-12-month EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples of 14.1x, 13.6x, 14.2x, and 12.0x, respectively.
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