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Energy Transfer Ups Adjusted EBITDA Guidance for 2024

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Image: Energy Transfer’s financials are in much better shape than they were years ago. By Brian Nelson, CFA On May 8, Energy Transfer (ET) reported strong first-quarter 2024 results. Adjusted EBITDA for the three months ended March 31 came in at $3.88 billion, which was nicely higher than the $3.43 billion mark it achieved in the same period last year. Distributable cash flow [DCF] in the quarter came in at $2.36 billion, which was materially better than the $2.01 billion registered during the first quarter of 2023. During the first quarter of 2024, the company’s crude oil transportation volumes increased 44%, which set a new record. Crude oil terminal volumes increased 10%, NGL fractional volumes increased 11%, NGL exports increased … Read more

Energy Transfer’s Lofty Distributions Are Much More Sustainable These Days

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Image: Energy Transfer covered its distributions with traditional free cash flow in 2023, and the company offers investors an elevated distribution yield. By Brian Nelson, CFA Energy Transfer (ET) reported mixed fourth-quarter results on February 14, but the company’s traditional free cash flow metrics continue to hold up well, providing support to its lofty distribution. Years ago, pipeline entities were spending much more than they reasonably could to be able to sustain their distributions at prior levels, and many have readjusted both their capital spending trajectories as well as their distributions over the years. These days, pipeline entities such as Energy Transfer, with their geographically diversified portfolio of assets, are in much better shape to sustain their payouts. Units of … Read more

Energy Transfer Making a Comeback, Shares Yield ~8.7%

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Image: Energy Transfer is working its way back after a long stretch of underperformance. By Brian Nelson, CFA Energy Transfer (ET) is one of the largest midstream, transportation and storage companies for natural gas, crude oil, NGLs (natural gas liquids), and other refined products, and the firm has investments in Sunoco LP (SUN) and USA Compression Partners (USAC). The company is nowhere near the bubble levels of 2015, but the pipeline operator has been staging a comeback backed by traditional free cash flow, and we are warming up to this dividend payer. Shares yield ~8.7% at the time of this writing. In the pipeline space, investors tend to pay attention to a metric called distributable cash flow [DCF], not to … Read more

A Note on Valuation — Low P/E Stocks with High Dividend Yields

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“But carrying low valuation parameters is far from synonymous with “underpriced.” It’s easy to be seduced by the former, but a stock with a low p/e ratio, for example, is likely to be a bargain only if its current earnings and recent earnings growth are indicative of the future. Just pursuing low valuation metrics can lead you to so-called “value traps”: things that look cheap on the numbers but aren’t, because they have operating weaknesses or because the sales and earnings creating those valuations can’t be replicated in the future.” – Howard Marks, Something of Value (2021) By Brian Nelson, CFA I was reminded of Howard Marks’ 2021 memo, “Something of Value,” after a few readers expressed interest in low … Read more

Kinder Morgan Now Covers Cash Dividends with Traditional Free Cash Flow

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By Brian Nelson, CFA On October 18, Kinder Morgan (KMI) reported third-quarter results that came in lower than expectations, but we’ve taken note of the company’s improved free cash flow generation that now runs in excess of its cash dividends paid, a huge change from a decade ago, where capital spending and cash dividends paid far outweighed its operating cash flow capacity. The company’s dividend stands at $1.13 per share on an annualized basis, and Kinder Morgan now has a forward estimated dividend yield of ~6.7%, which is quite attractive. Shares are trading meaningfully below our estimate of their intrinsic value, too, and we’re warming up to the company’s financials. Its net debt position likely precludes it from being added … Read more

We Like NextEra Energy’s ESG Focus But Capital Market Conditions Now Showing Cracks

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Image Source: NextEra Energy By Brian Nelson, CFA We’ve written in the past about NextEra Energy (NEE), and our latest note can be found here. The company remains one of our favorite utilities, but mostly because of its renewables energy exposure as it relates to ESG considerations. When it comes to utilities, more generally, however, we tend to take a pass on almost all of them given the capital intensity involved in their operations and their interest-rate sensitivity, especially now in an environment where interest rates are returning to “normal” levels in the mid-single-digits. The forward estimated dividend yield on the Utilities Select Sector SPDR ETF (XLU) stands at ~3.8% at the time of this writing, and if investors are … Read more

Magellan Midstream Soars on Takeout Deal

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Image: Magellan Midstream Partners soars on a takeout offer from ONEOK, Inc. By Brian Nelson, CFA We’re as happy as we can be to see a midstream energy master limited partnership (MLP) takeout. On Sunday, May 14, it was publicly announced that Magellan Midstream (MMP) would be bought by ONEOK, Inc. (OKE) in a cash and stock deal worth ~$18.8 billion including assumed debt. According to the deal terms, the transaction would give $25 per share in cash and 0.667 common share of ONEOK for each MMP common unit. Though many are questioning the rationale behind the deal, energy infrastructure rollups continue to reduce the number of energy MLPs trading on public markets, as we predicted years ago. Units of … Read more

There Are No Free ‘Income’ Lunches

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Image Source: Jeffrey Beall By Brian Nelson, CFA We often talk about certain areas of the market such as large cap growth and small cap value. One of the big takeaways of the book Value Trap is that it explains that there are not really growth or value stocks, but rather there are only undervalued, fairly valued, and overvalued stocks determined on the basis of a price-versus-fair value consideration. This will always be true. Each company is different, and no company can be distilled into a simple price-to-earnings (P/E) or price-to-book (P/B) metric to determine the attractiveness of its valuation. For example, a company with a low P/E can be overvalued because the market is missing its huge net debt … Read more

Our Reports on Stocks in the Oil and Gas Complex Industry

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Dividend Yield: Estimated on a forward-looking annualized basis. VBI: The Valuentum Buying Index, a timeliness indicator that overlays a price-to-fair-value estimate consideration. Fair Value Estimate: Derived by Valuentum’s enterprise valuation process. Dividend Cushion ratio: A ratio assessing the health of the dividend (the higher, the better). Data as of the date of this article. Individual company reports may have been updated subsequent to the publishing of this article, so please download a company’s stock and dividend report for its latest information and data. Note: The data in the tables of each of the below companies’ respective stock pages is updated the weekend after the publishing of this update. Please click on a company name below to view the corresponding equity … Read more

Energy Pipelines: What a Difference A Few Years Have Made!

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Image: Midstream energy companies have significantly improved their free cash coverage of their payouts in recent years. We’ve taken note. Source: Relevant 10-Q filings. By Brian Nelson, CFA As of our last check, no longer are the vast majority of energy pipeline players not covering their dividends/distributions with traditional free cash flow, as measured by cash flow from operations less all capital spending. Said another way, free cash flow after dividends, distributions is positive for a great many energy pipeline players these days. We’re pleased by the developments across midstream, and we expect to make some moves in the simulated newsletter portfolios to potentially add the Alerian MLP (AMLP) ETF to the simulated newsletter portfolios as a result. This is … Read more