Why Enterprise Products Partners Outshines Energy Transfer
![Why Enterprise Products Partners Outshines Energy Transfer](https://investorshangout.com/images/blog/ihnews-Why%20Enterprise%20Products%20Partners%20Outshines%20Energy%20Transfer.jpg)
Focus on Reliable Investments
Energy Transfer (NYSE: ET) is currently presenting investors with an enticing 8% distribution yield. In contrast, Enterprise Products Partners (NYSE: EPD) offers a yield of 7.2%. While both entities belong to the midstream energy sector, they serve distinct investment purposes. This article elaborates on why potential investors may favor Enterprise Products Partners over Energy Transfer.
The Challenges Facing Energy Transfer
Energy Transfer has faced significant hurdles, particularly highlighted during the energy price downturn early in the pandemic, which prompted a 50% cut in its distribution. While this drastic action may have seemed justifiable given the unprecedented uncertainty at the time, it does raise concerns about the investment's reliability. Though the MLP's distribution has been on a rebound and even surpassed pre-cut levels, investors focused on consistent income should reflect on the choices made in 2020. This history opens up the genuine risk that future industry downturns could result in similar responses.
Failed Agreements and Corporate Governance Issues
In examining Energy Transfer's past, the company's unsuccessful 2016 attempt to acquire Williams Companies stands out. Initially driven by Energy Transfer, the deal fell through amid market pressures, which led the company to abandon the agreement, citing potential debt risks and the possibility of needing to cut dividends. This situation escalated when the CEO acquired a substantial portion of convertible securities that would shield him from the fallout of any distribution cuts while ordinary investors faced the consequences. As the current chairman of the board, Kelcy Warren's past actions continue to raise red flags for potential investors.
Enterprise Products Partners: A Different Approach
In stark contrast, Enterprise Products Partners has built a strong reputation as a resilient and reliable MLP. It has consistently raised its distribution for 26 consecutive years and has handled acquisitions judiciously. Its management approach prioritizes stability, which has fostered a robust investment-grade balance sheet and strong distribution coverage ratio, currently at 1.7 times the distributable cash flow.
Unitholder-Friendly Decisions
Enterprise Products Partners has a long record of making decisions that favor unitholders. Notable actions include reducing incentive distribution rights in 2002 to enhance available cash for unitholders and buying out its general partner to become self-governing in 2011. Such strategic decisions illustrate management's commitment to strengthening investor returns and minimizing dilution.
Choosing the Right Investment
While Enterprise Products Partners may not boast the highest yield, its focus on delivering consistent returns and prioritizing unitholders' interests makes it a more reliable investment than Energy Transfer. Investors seeking stable income from their portfolios should consider Enterprise as the safer long-term option.
Is Investing in Energy Transfer a Smart Move?
Before allocating funds to Energy Transfer, potential investors should critically assess the company’s historical performance. With a higher yield than Enterprise, it might be tempting to invest, but understanding the underlying risks is crucial.
Summary of Considerations
Investors should remember the importance of evaluating not just current yields, but the implications of past management decisions that could affect future stability and performance. The historical context and current business practices of both companies can significantly influence return potential.
Frequently Asked Questions
What is the main advantage of investing in Enterprise Products Partners?
Enterprise Products Partners has a consistent track record of increasing distributions without major cuts, showcasing its reliability and commitment to unitholders.
How does Energy Transfer's distribution yield compare to Enterprise's?
Energy Transfer offers an 8% distribution yield, while Enterprise Products Partners provides a slightly lower yield of 7.2%. However, the stability and history of payments may favor Enterprise.
Why should investors be wary of Energy Transfer?
Energy Transfer has a history of distribution cuts and past management decisions that raise concerns about the company's commitment to maintaining reliable payouts during downturns.
What was the outcome of the 2016 agreement between Energy Transfer and Williams Companies?
The agreement fell through due to market conditions, leading to Energy Transfer abandoning the deal amidst concerns over excessive debt and dividend cuts.
What strategies does Enterprise Products Partners use to ensure stability?
Enterprise focuses on sound financial management and strategic decisions that benefit unitholders, such as reducing distribution rights, acquiring its general partner, and maintaining a strong balance sheet.
About Investors Hangout
Investors Hangout is a leading online stock forum for financial discussion and learning, offering a wide range of free tools and resources. It draws in traders of all levels, who exchange market knowledge, investigate trading tactics, and keep an eye on industry developments in real time. Featuring financial articles, stock message boards, quotes, charts, company profiles, and live news updates. Through cooperative learning and a wealth of informational resources, it helps users from novices creating their first portfolios to experts honing their techniques. Join Investors Hangout today: https://investorshangout.com/
Related Articles
- Top Energy Stocks with Impressive Dividend Yields
- Palantir Technologies and Microsoft: A Strategic Partnership
- Pineapple Energy Reports Q2 Performance and Future Outlook
- Growth of the Global Molten Salt Thermal Energy Storage Market
- Icahn Enterprises Faces Share Dilution Concerns
- XWELL Partners with Priority Pass for Enhanced Traveler Wellness
- Pineapple Energy Reports on Recent Financial Performance Insights
- McEwen Mining Partners for 100% Renewable Energy in Copper Project
- Understanding the Recent Decline of Icahn Enterprises
- Kingswood Capital Partners Closes $8 Million IPO for WORK MedTech