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Midstream Stock Yields 10.5%, With 40% Upside Potential, Insiders Are Buying

Jul. 11, 2017 8:15 AM ETEnergy Transfer LP (ET)379 Comments


  • ETP is a midstream MLP which traded recently at $20.50 and yields 10.5%.
  • The stock has pulled back recently due to a complex merger and a distribution cut, creating shareholder morale issues.
  • ETP has strong growth projects coming online and could see massive DCF growth in the next two years.
  • The stock is currently seeing upgrades. Using analysts' ratings and price targets, ETP offers a 40% potential upside.
  • Based on our conservative assumptions, ETP share has at least 30% upside potential in addition to a growing yield which is likely to reach 15% by the year 2019.

This research report was jointly produced with High Dividend Opportunities co-author Philip Mause.

Energy Transfer Partners, L.P. (ETP), is an MLP (issuing K-1s) which has been declining in recent weeks. ETP traded recently at $20.50 and pays a distribution of $2.14 per year for a yield of 10.5%. ETP has just been through a somewhat confusing merger and an effective distribution cut which have created shareholder morale issues. ETP has multiple strong growth projects coming online and should see considerable growth in cash flow leading to higher distributions.

The Merger - ETP recently merged with Sunoco Logistics Partners (whose symbol was formerly SXL). We wrote about the merger in the following article: Merger Between SXL And ETP

Although ETP was by far the larger company, the merger was structured in an unusual manner. SXL actually acquired ETP by issuing one and a half shares of SXL for each ETP share. Then, SXL changed its name and its symbol to ETP. The overwhelming majority of shares in the new entity are shares exchanged for pre-existing ETP shares.

The big problem is that - prior to the merger - ETP unit holders were getting a dividend of more than $4 a unit. After the merger, an old ETP unit holder gets 1.5 units of the new ETP and receives only $3.21 in distributions. Thus, the merger effected a kind of "stealth" distribution cut. Less money is going out the door each quarter in distributions from the combined companies than was going out the door prior to the merger. And, we all know how much unit holders "love" distribution cuts.

The Business - ETP's business is best understood as consisting of five segments:

  1. Interstate Natural Gas Transmission - ETP owns and operates some of the most important interstate natural gas pipelines which serve as

This article was written by

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Analyst’s Disclosure: I am/we are long ETP, ETE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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