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Energy Transfer Equity, L.P. (ETE) offers income investors a 5.9% dividend yield with a favorable General Partner (GP) Incentive Distribution Rights (IDR) in 1) Energy Transfer Partners LP (ETP), and 2) Regency Energy Partners (RGP). My focus is always on the General Partner. The General Partner usually has financial incentives lined up in their favor. This article will focus upon the GP analysis and why catalysts are lined up to benefit Energy Transfer Equity. I address the other associated Energy Transfer complex names and two midstream partnerships to invest in.

ETE Total Return Price Chart

ETE Total Return Price data by YCharts

Business Model

Energy Transfer Equity, L.P.

Energy Transfer Equity, L.P. owns over 26.3 million Regency limited partner units. Energy Transfer Equity, L.P. is the parent of Southern Union Company. The Energy Transfer Equity complex owns about 45,000 miles of natural gas and natural gas liquids pipelines.

The Energy Transfer Equity has averaged a 14.4% return over the past 7 years. This beats the SP500 returns by 750 basis points, on average, per year.

Distribution

The dividend has increased slowly and gradually each year since 2006. The yield is currently 5.9% versus the 10 Year Treasury Bond yield of 1.49%.

Revenues

Energy Transfer Equity's revenue has slowly declined in recent quarters. The 1st quarter revenue was $1.7 billion. This was 15% below the $1.99 billion from the 2011 1st quarter. The 2nd quarter conference call is on August 10th.

Catalysts

1. Entergy Transfer Equity announced two positive catalysts to increase quarterly distributions. Entergy Transfer Equity purchased Sunoco, Inc. (SUN). Sunoco is a midstream partnership and the GP of Sunoco Logistics Partners, L.P. (SXL). The acquisition was announced on April 30th and is expected to close by December 31st. Secondly, Sunoco owns 34% of Sunoco Logistics Partners. Sunoco Logistics Partners operates pipelines and product terminals.

2. Entergy Transfer Equity, on June 18th, announced plans to drop down its interest in Southern Union Company to the Entergy Transfer complex. This will make Southern Union's assets more transparent to public unit holders.

Energy Transfer Partners LP

Energy Transfer Partners, L.P. is a master limited partnership (MLP) in the US. The MLP is a leader in midstream transportation of natural gas. The MLP is the 3rd largest retail propane marketer. Energy Transfer Partners LP's revenues continued to decline in the 2012 1st quarter. Revenue decreased by 22.6% to $1.3 billion from $1.7 billion in 2011's 1st quarter.

Dividend Reinvestment Plan (DRIP)

The Energy Transfer Partners complex offers a 5% discount on reinvested dividends.

Distribution

The above distribution table highlights a major concern. Energy Transfer Partners has paid a flat distribution for 16 consecutive quarters. The 2nd quarter distribution, 89.4 cents, will be paid on August 14th. The total annual distribution amounts to $3.575 per year. Based upon a $45.80 unit price, the current annual yield is 7.90% per year.

Regency Energy Partners LP

Regency Energy Partners LP is a MLP focused on midstream operations in natural gas and natural gas liquids. Key areas include Haynesville, Eagle Ford, Permian basin, Barnett, Fayetteville, and Marcellus.

Regency Energy Partners LP continues to experience flat quarterly distributions. Per the above table the 2008 annual distribution was $1.71. In 4 years the 2011 distribution has increased by only 8 cents to $1.79.

Summary

Regency Energy Partners LP and Energy Transfer Partners, L.P. are not increasing distributions. Income investors need increasing income. If there is a slowdown in income increases, changes need to be made. Management is responsible for these actions. I would avoid buying shares in Regency Energy Partners LP and Energy Transfer Partners, L.P.

I believe Energy Transfer Equity, L.P. has merit to own. The management team announced two key strategic decisions to increase revenues, earnings, and distributions. In the meantime, the GP pays an annual 5.9% yield. I would avoid all other publicly traded assets in the Entergy Transfer Equity complex. I want to see how the GP handles the acquisition and the drop down of Southern Union Company assets.

I would recommend investors focus upon Enterprise Products Partners L.P. (EPD) and Kinder Morgan, Inc. (KMI). Both are N. America's premiere midstream partnerships. The income distributions have a record of solid growth and the companies have navigated the markets to acquire ideal midstream assets. Owning the best midstream operators offers investors a higher likelihood of increasing distributions and accruing capital gains on partnership units.

Source: 3 Dividend Stocks To Buy And 3 To Avoid