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Energy Transfer - Dividend Risk Masks Financial Strength

Jun. 11, 2020 5:44 AM ETEnergy Transfer LP (ET)158 Comments


  • Energy Transfer has an impressive portfolio of assets. The company has some dividend risk from a potential rating downgrade.
  • However, the company's overall financial strength and cash flow is impressive and that's the money that will keep being available for shareholders.
  • Energy Transfer is moving towards FCF positive. That means that the current time is the bottom of the company's financial position, and things will only improve from here.
  • I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Energy Transfer (NYSE: NYSE:ET) is one of the largest midstream companies with a market capitalization of more than $20 billion and a double-digit dividend yield. The company has recovered significantly since its 52-week lows, however, despite that it has significant potential to go and offers shareholders a great potential return.

Energy Transfer - Hunt, Guillot & Associates

Energy Transfer First Quarter Results

Energy Transfer showed its ability to generate significant shareholder returns with its 1Q 2020 results, along with its ability to handle the downturn.

Energy Transfer 1Q 2020 Results - Energy Transfer Investor Presentation

Energy Transfer recorded record volumes moved as a midstream company, which is what truly matters, versus prevailing market prices. The company continued to focus on its core businesses and recently placed the Panther 2 Processing Plant and Frac 7 into service. The company's massive investments over the past few years and new projects will help to support more cash flow.

Financially, the company saw adjusted EBITDA of $2.64 billion and $1.42 billion in DCF. That came with a 1.72x DCF coverage ratio and $1 billion in growth capital. The company managed to achieve nearly $600 million in DCF in excess of contributions, however, due to capital spending, it still had to borrow $400 million.

The company has cut its capital spending recently to be roughly $3.6 billion for 2020. That means the company has roughly $850 million in remaining quarterly capital spending. That means the company's borrowings on a quarterly basis will be much lower. Going into 2021, the company is looking at more like $500 million in quarterly capital spending.

That means the company should be capital spending positive. Additionally, the company has a strong strategic and liquidity position. The company has recently completed a strong midstream acquisition and has respectable growth potential going forward. We will expand

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