Is Energy Transfer (ET) the next big dividend winner?

Leading midstream oil and gas company Energy transfer LP(ET) It has again attracted attention among investors seeking income through high-yield dividends. Currently, the company’s distribution rate of return exceeds 8%, which is significantly higher than the market rate of return of 1.4%.

Moreover, energy companies have been a staple of lawmakers’ portfolios for many years. In 2023, Representative Mark Green of Tennessee was elected. second best stock trader The council boasts an impressive return on investment of 122.2%.

Let us now take a closer look at the company’s business operations, its guiding principles, and how they support attractive distribution.

Recent strategic expansion initiatives

Operating an extensive network of approximately 125,000 miles of pipelines to transport crude oil, natural gas and natural gas liquids (NGL), Energy Transfer demonstrates robust and resilient business operations.

On March 27, 2024, the Texas Rangers announced: Expanding partnership with ET, the energy company has signed a multi-year deal to serve as the official jersey patch partner of the Rangers. The move marks a significant expansion of the company’s brand visibility and community engagement.

“Expanding our partnership to include jersey patches creates an opportunity to show our support for the team while connecting the brand with Rangers fans in the metroplex and across the country,” said Mackie McCrea, ET Co-CEO.

ET on February 23rd and Sunoco LP (SUN) join forces Sponsorship of Sauber Motorsport’s Stake F1 team KICK Sauber, celebrates its first marketing partnership. The two-year deal, starting with the 2024 season, grants sponsorship of three Formula 1 Grand Prix races in the United States.

Additionally, in November 2023, Energy Transfer completed its previously announced plans. Merged with Crestwood Equity Partners LP, Integrated operation is in progress. The merger is expected to generate annual cost synergies of $80 million by 2026 and $65 million by 2024, with additional benefits expected from financial and commercial synergies.

What’s in store for income-oriented investors?

ET is committed to returning value to shareholders through attractive dividends. On April 24, the company announced a quarterly cash distribution of $0.3175 per common unit ($1.27 on an annualized basis) for the first quarter, payable on May 20, 2024. The distribution per unit represents: 3.3% increase compare to last year.

The company also expects distribution growth of 3 to 5 percent annually. Energy Transfer’s current dividend yield translates to 8%, and the four-year average dividend yield is 9.8%. Meanwhile, ET has increased its dividend at a compound annual growth rate (CAGR) of 10.8% over the past three years.

Strong 2023 fourth quarter performance and optimistic 2024 outlook

for fourth quarter ET’s revenue for the year ended December 31, 2023, was $20.53 billion, up slightly from the previous year. Operating profit recorded $2.17 billion, a 19.9% ​​increase over the previous year. Net income attributable to partners and net income per common unit were $1.33 billion and $0.37, respectively, up 14.9% and 8.8%, respectively, compared to the same period last year.

Additionally, the energy company’s adjusted EBITDA increased 4.8% year over year to $3.6 billion. Additionally, distributable cash flow attributable to partners amounted to $2.03 billion, compared to $1.91 billion in the same period last year.

During the fourth quarter, Energy Transfer achieved important milestones by adding new growth projects and acquisitions. The company’s assets recorded a 16% increase in NGL fractionation, setting a new record. NGL shipments also saw a notable surge of 10%. Additionally, NGL exports increased more than 13%, demonstrating the company’s expanded market presence.

Additionally, interstate natural gas shipments increased 5%, while midstream gatherings increased by the same amount. Crude oil shipments and terminal volumes increased 39% and 16%, respectively.

ET expects adjusted EBITDA to decline to between $14.5 billion and $14.8 billion in fiscal 2024. The midpoint of this range is a 7% increase over last year’s Adjusted EBITDA. Growth capital spending is estimated to be in the range of $2.4 billion to $2.6 billion, including approximately $300 million in deferred spending from previous 2023 capital guidance.

Energy Transfer is scheduled to report its first quarter results on May 8. For the quarter ended March 2024, analysts expect the company’s EPS and revenue to hit $3.88 billion and $20.97 billion, up 19% and 10.4%, respectively, from the prior year. Additionally, ET’s EPS and revenue for fiscal 2024 are expected to be $1.57 billion and $85.7 billion, up 44.1% and 9.1%, respectively, from the previous year.

conclusion

ET’s business continues to grow, driven by consistent demand across its network and strategic acquisitions and partnerships. We benefit from a portfolio of assets with superior product and geographic diversity. Moreover, the energy company reported impressive fourth quarter results, driven primarily by volume growth across all core segments and the positive impact of the recent Enable Midstream acquisition.

ET also announced an increase in its quarterly cash dividend to $0.3175 per common unit in the first quarter of 2024. The company’s annual dividend reflects a profitable yield of 8%. Energy Transfer targets annual distribution growth of 3-5%. The dividend increase reflects ET’s confidence in its financial strength and growth prospects.

Additionally, the stock is somewhat undervalued. ET’s forward non-GAAP price-to-earnings ratio of 10.17 is 7.5% lower than the industry average of 11. Additionally, ET’s forward price/sales multiple of 0.62 compares to the industry average of 1.49.

In terms of price performance, the mid-cap’s stock is up nearly 15% year to date and up more than 25.1% over the past year. Moreover, RBC Capital analyst Elvira Scotto recently said: Maintain BUY investment opinion on ET And the target stock price was set at $19. In addition, Mizuho Securities maintained a buy investment opinion with a target price of $19.

Given ET’s promising expansion efforts, solid financial performance, and attractive dividend yield, we believe this stock has the potential to be the next dividend winner. This makes it an ideal purchase for those who are primarily focused on income.