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energy transfer (New York Stock Exchange:ET) We have made great progress over the past few years. The master limited partnership (MLP) has worked hard to strengthen its financial position. That included cutting its dividend in half several years ago to free up additional cash to reduce debt.
The energy midstream company has since restructured its distribution, which is now higher than its previous peak. At a current yield of 8.7%, that large dividend is built on a very solid foundation.That was one of the key points MLP‘s recent Conference call regarding fourth quarter financial results.
Energy Transfer’s financials are at their best in years
During the conference call, Energy Transfer Co-CEO and CFO Tom Long spoke about the company’s significantly improved financial position. “As a result of our continued focus on strengthening our balance sheet, we are in the strongest financial position in Energy Transfer’s history,” he said.
Mr. Long highlighted that the company made meaningful progress last year, using excess cash to pay down debt and continue to strengthen its financial position. As a result, MLP will be looking forward to this year. leverage ratio It is expected to be in the lower half of the target range of 4.0 to 4.5 times.This improvement is based on the credit reporting agency Fitch and S&P Globalhas been upgraded. bond rating To BBB.
The company’s high credit rating provides easier access to lower cost capital. Earlier this year, the company used this to issue $3 billion in senior notes maturing in 2034 and 2054, yielding 5.55% and 5.95%, respectively. It also issued $800 million in junior bonds with a yield of 8% due in 2054.
Energy Transfer used the capital to refinance existing debt and repurchase its 3 Series bonds. priority unit. Redeeming preferred units can help simplify your capital structure and save money.
Flexibility to create more value for investors
Mr. Long said the company’s financial strength provides it with “the flexibility to balance further deleveraging and pursuing new growth opportunities, maintaining our targeted distribution growth rate, and increasing equity returns to unitholders.” It will be possible,” he said. The company has already set a goal of increasing its high-yield distribution by 3% to 5% annually. In addition, it has the financial ability to pursue new growth opportunities (acquisitions and organic investments) while returning additional cash to investors, which should increase its valuation.
I accomplished all three in the past year. As mentioned above, the company has already started buying back some of its preferred units. Meanwhile, the company completed two acquisitions last year. It also approved new expansion projects, including a $1.25 billion expansion of a terminal in the Netherlands.
MLPs are well-positioned to continue to grow their businesses and increase value for investors. Although the company has not initiated a common unit repurchase program, it has the financial flexibility to repurchase some of its shares this year.
Meanwhile, it has excess cash flow that can easily support growth capital expenditures of up to $3 billion annually. The company plans to invest between $2.3 billion and $2.6 billion this year, with the ability to add additional growth projects as opportunities arise. We currently have several exciting projects in development that could drive future growth.
In addition, Energy Transfer has the balance sheet strength to continue consolidating its midstream division. The company made two notable deals last year: buying Lotus Midstream for about $1.5 billion and MLP Crestwood Equity Partners for $7.1 billion. The company has structured the transaction to be leverage-neutral to maintain optimal balance sheet flexibility.
Future transactions will allow the company to realize cost savings (the Crestwood transaction is expected to realize $80 million in cost savings), expand cash flow, and create more assets to increase value for investors. funding will be available.
Income stocks are becoming increasingly safe
Energy Transfer has significantly strengthened its financial position over the past few years. This means the company’s big payouts are more secure than ever. This makes MLPs a great option for those looking for a sustainable and steadily increasing source of income.
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Matt DiLallo holds a position with Energy Transfer. The Motley Fool has a position in and recommends S&P Global. The Motley Fool has a disclosure policy.
The article This Super Dividend Stock Is Safer Than Ever was originally published by The Motley Fool
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