Energy Transfer LP: The Best 9% Yielding Stock With A 1.8X Distribution Coverage

Co-produced withTrapping Value and Treading Softly
We recently discussed how hated energy is as an asset class. While E&Ps are down in the dirt, midstream companies responsible for processing and transporting products have not exactly fared much better. This has set up a rather lopsided bet where fundamentals and valuations have diverged massively. The amount of energy needed globally continues to increase year-after-year relentlessly, while the valuations at which the MLPs trade continues to compress year after year. Today we are looking at one name in this space that we are extremely bullish on, Energy Transfer LP (ET).
The business
ET is the largest MLP around by market capitalization. It's involved in every aspect of the midstream service space.

Source: Energy Transfer Presentation
While the large franchise has done well fundamentally, it does have an interesting past and that consists of two distribution cuts. Energy Transfer, or rather Energy Transfer Equity as it was known then, created the merger of Sunoco Logistics Partners and Energy Transfer Partners (ETP), two MLPs it controlled. While they moved under the symbol of Energy Transfer Partners, that came with a stealth distribution cut of 25% for Sunoco Logistics Partners' investors.
The original ETP investors though stuck through that phase as "their" distribution had been unchanged. That was not to last. We had speculated that the General Partner IDR overhang on ETP was strong enough that... Read more