When you invest for income, there is an enormous temptation to buy the best -leaking investments that you can. That is understandable, because it will result, at least in the short term, in a larger income flow. But you have to resist that temptation if you are a long -term dividend investor.
Sometimes it is better to buy a lower yield that is supported by a historically well -run company than to buy a high return from a company with a less than impressive history. This is precisely the case when you compare Energy transfer(NYSE: et) Unpleasant Enterprise Products Partners(NYSE: EPD) Today.
Energy transfer is an energy company with a focus on the middle current segment of the industry. That means it has the infrastructure that helps to move oil and natural gas all over the world.
The key, however, is that the Energy Transfer company is heavily based. As a toll person, the price of the raw materials that flow through his system is less important than the demand for those products. Energy question is usually strong, regardless of what is going on with energy prices.
Enterprise Products Partners is actually the same story. Just like energy transfer, it is one of the largest middle -stream players in North America. There are clear differences in the underlying assets that each of these MLPs owns, but it would be understandable if an investor would consider them somewhat interchangeable from a business perspective.
And given that the distribution yield of Energy Transfer is 7%, while the yield of Enterprise is 6.4%, you can be tempted to easily opt for the higher yield. That’s a mistake.
There are a few reasons for this, but the first has to deal with the distribution immediately. Although the distribution of Energy Transfer has increased lately, it was cut in two during the Coronavirus Pandemia. The energy sector was under serious pressure at that time, so the decision to reduce the distribution is not unreasonable. It ensured that the MLP had liquidity in what was a very uncertain time.
Enterprise Products Partners increased its distribution in 2020 and has now increased its distribution annually for 26 consecutive years. There have been several energy -in the last quarter of century, so Enterprise has clearly demonstrated that it is a more reliable income benefit.
ET dividend per share (quarterly) data from Ycharts
The following reason to prefer business products over energy transfer is financial strength. As the graph below emphasizes, the debt of the debts of Energy Transfer (profit for interest, taxes, depreciation and amortization) has fallen material in recent decade.
That is good, but the debt-to-bitda ratio of Enterprise Products partners was lower all the time and still remains lower. The leverage of Enterprise is generally on the low side of the industry compared to colleagues of similar size. It is managed conservatively and has always been.
Et Financial Debt to EBITDA (TTM) -Data by YCHARTS
The third reason is a bit more vagient and some investors may think that the story is too old to take care of it today. In 2016, however, the energy transfer agreed to buy Williams companies. A decline of an energy industry led it to reconsider and eventually kill that deal. To do this, energy transfer has issued convertible effects and sold a remarkable amount of the hybrid assets to the then CEO – a process that questioned some observers. That CEO is the current chairman of the board of directors.
This was a complicated period and the decision to increase the Williams deal was probably the right call. However, the way the deal was terminated is disturbing and suggests that energy transfer was more concerned about insiders than non -traders. There is no comparable event in the past of Enterprise Products partners. And when you combine the 2016 decision of Energy Transfer with the distribution in 2020, this creates a disturbing pattern if you are an income investor.
Every company goes through difficult times. And every company makes decisions that will regret it later. However, if you compare Enterprise with energy transfer, it is quite clear that Enterprise is the more reliable income stock. It is no longer worth the 60 basic points in the income that you get from the resignation in energy transfer, which is simply a less desirable middle current investment when you look at distribution reliability, leverage and major decisions that do not affect unithwants.
Have you ever had the feeling that you missed the boat to buy the most successful shares? Then you want to hear this.
In rare cases, our expert team of analysts gives one “Double Down” Recommendation for companies that they think is about to pop. If you are worried that you have already missed your chance to invest, this is the best time to buy before it is too late. And the figures speak for themselves:
Nvidia:If you invested $ 1,000 when we doubled in 2009,You would have $ 292,207!**
Apple: If you invested $ 1,000 when we doubled in 2008, You would have $ 45,326!**
Netflix: If you invested $ 1,000 when we doubled in 2004, You would have $ 480,568!**
At the moment we are publishing “Double Down” warnings for three incredible companies, and there may not be a different chance soon.
Go on “
*Stock Advisor Return on March 10, 2025
Reuben Gregg Brewer has no position in one of the aforementioned shares. The Motley Fool recommends Enterprise Products partners. The Motley Fool has a disclosure policy.
Energy transfer versus Enterprise Products Partners: There was 1 clear dividend sharing winner winner originally published by the Motley Fool
