Energy Transfer: Higher Distributions Returning Soon

Summary

• The midstream giant, Energy Transfer halved their distributions almost exactly one year ago but this year the situation is different.
• Even after ignoring the one-off benefit they saw from Uri, their cash flow performance appears to be recovering to its pre-downturn level of 2019.
• This leaves ample free cash flow to fund higher distributions and with further capital expenditure reductions coming, they could very easily afford way higher distributions.
• They have rapidly deleveraged during the first half of 2021 and management has already flagged the possibility of higher distributions.
• The scene appears set to see higher distributions returning soon and thus I believe that a very bullish rating is appropriate.

JuSun/iStock via Getty Images

Introduction

There were many distribution reductions following the downturn of 2020 with the biggest casualties in the midstream industry being the giant, Energy Transfer (NYSE:ET) who halved their distributions almost exactly one year ago. Whilst their distribution yield is still

Analyst’s Disclosure:I/we have a beneficial long position in the shares of ET either through stock ownership, options, or other derivatives. 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.