All Aboard the Energy Transfer Dividend Dream Boat

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

The last thing I want to do is turn my readers into yield chasers. There’s more to investing than indiscriminately seeking out the biggest dividend payouts. In the case of Energy Transfer (NYSE:ET), however, the dividend distributions are big enough to make ET stock almost irresistible.

Source: Casimiro PT /

However, there’s more to the story as Energy Transfer isn’t just a dividend darling. It’s also a company that’s managing reasonably well through these highly challenging economic times.

As you might already know, energy companies struggled more than businesses in some other market sectors. As evidence of this, we can discern that many energy-sector assets, including ET stock, trade at reduced prices.

That’s not necessarily a bad thing, especially as value-focused investors may be interested in purchasing ET shares at a discount. And while you’re waiting for the stock price to (hopefully) recover, you can sit back and collect sizable dividend distributions.

A Closer Look at ET Stock

When it comes to ET stock, a couple of essential stats jump out immediately. The most obvious one is the annual forward dividend yield of 18.35%. Even among dividend aristocrats in the energy sector, Energy Transfer’s yield is impressive.

Then there’s the trailing 12-month price-earnings ratio, which is 12.74 for ET stock. This is right in the sweet spot as it’s low but not too low. What this valuation metric indicates is that the company is generating solid earnings while the stock price is still reasonable.

It certainly would have been nice to grab some shares when ET stock was trading at its 52-week low of $3.75 back in March. Those days are in the rear-view mirror, but the upside potential is still there.

Remember, ET shares were sitting comfortably at the $13 level not too long ago. Hence, it’s possible that they could eventually revisit that price point.

Not Necessarily Thriving, but Surviving

To put it simply, Energy Transfer is one of the most important American owners and operators of oil and natural gas pipelines. With a touch of braggadocio, the company bills itself as “one of the largest and most diversified midstream energy companies in the country with more than 90,000 miles of pipelines traversing 38 states.”

If you can believe it, approximately 30% of the oil and natural gas in the United States is moved through Energy Transfer’s pipelines (or at least, that’s what the company claims). It’s fair to say, then, that Energy Transfer’s prosperity depends largely on the demand for energy products.

That demand, as we now know in hindsight, greatly reduced during 2020’s second quarter. Therefore, it’s reasonable to expect that Energy Transfer’s quarterly financial results would be a complete disaster.

Encouragingly, though, the company fared reasonably well given the difficult circumstances. Even amid the novel coronavirus pandemic, Energy Transfer reported that the company’s “field operations have continued uninterrupted.”

Good News Comes Down the Pipeline

Not only that, but during the second quarter, Energy Transfer reportedly “achieved record high transportation and fractionation volumes in its NGL and refined products transportation and services segment” as well as robust volumes of energy-product gathering and processing in Texas’s Midland Basin.

So, the company managed fairly well even while Covid-19 overtook the American energy market. And on top of all that, a major reprieve came from the U.S. Court of Appeals for the District of Columbia Circuit recently.

That legislative entity decided not to immediately shut down the Dakota Access Pipeline. It could still be shut down later, but for the time being, Energy Transfer’s stake in the 1,172-mile pipeline doesn’t appear to be at risk.

CFRA analyst Stewart Glickman expects that “This thing will be operational while the environmental issues are worked out on the back burner,” a process that could (in his estimation) take 13 months as a full environmental review is carried out.

And so, the pipelines can continue to run for at least a while longer. ET stock holders should revisit this issue periodically as it develops. For now, though, they can breathe a sigh of relief.

The Bottom Line

Even if you’re not a dividend hunter, you can still own ET stock as it’s a solid company with shares trading at a discount. And if you’re a dividend aficionado like I am, then that’s yet another reason to hold the shares for the long run.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

The post All Aboard the Energy Transfer Dividend Dream Boat appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.