Friday, November 18, 2011

Three reasons to avoid Energy Transfer Partners

Energy Transfer Partners L.P. (NYSE: ETP) is the third-largest energy pipeline master limited partnership (MLP) in the U.S.

The dividend yield is relatively high due to the lack of dividend increases. The equity in early November was yielding close to 8.0 percent, which is high for the MLP pipeline sector.

The three principle reasons to avoid Energy Transfer Partners:

(1) The dividend has failed to grow. ETP insiders control the general partner, Energy Transfer Equity (NYSE: ETE). Energy Transfer Equity controls 26 percent of Energy Transfer Partners L.P. shares.

(2) The cost of equity capital is one of the highest in the MLP space. Although Energy Transfer Equity has stated it will make General Partner concessions, time will tell if this will in fact drop down to Energy Transfer Partners. Per ETE's SEC 10K, Energy Transfer Equity's only income is: "The Parent Company’s … direct and indirect investments in limited partner and general partner interests in ETP and Regency (NYSE: RGP), both of which are publicly traded master limited partnerships engaged in diversified energy-related services."

(3) The corporate restructurings, including deals with AmeriGas Partners and Southern Union, need time to digest and prove they will result in higher Energy Transfer Partners dividends.

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