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Energy Transfer Partners
Old 03-31-2009, 01:26 PM   #1
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Energy Transfer Partners

ETP on the NYSE. I have been buying this limited partnership. So far the more I have looked into this company the more I like it. I am considering increasing this percentage to become my #2 holding after Coca-Cola.

Much of their income is derived from fee-based transportation and not subject to commodity price changes. As their capital projects for expansion of pipelines comes online, their cash available for income has continued to increase. 5 projects totalling over 1000 miles of pipelines is scheduled to be completed in the 1-2 years.

They claim to have the largest intrastate pipline system in the United States and with some of the above projects coming online are expected to continue to increase the shareholder payouts.

They also are one of the top retailers of propane (makes up about 15% of the total business). Expiring revolver credit line of 2.0 billion that expires in July of 2012 seems to me to be the one problem that could derail them, if they have trouble converting as they plan to long-term debt.

Any others here have thoughts on this company?
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Old 03-31-2009, 01:53 PM   #2
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Be careful when buying it in a tax-deferred account.
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Old 03-31-2009, 02:45 PM   #3
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I've owned ETP since Sept. I'll admit I haven't done a lot of digging into the financial. So far it is down 16% (less 5% in dividends received.)


The propane holding which speak of are likely to be sold, possibly to SPH (another long time holding of mine). M* estimate that they are worth $2 billion or 35% of the market cap. Of course they probably wouldn't be sold in this environment. Here is the analysis from Josh Peters M* Dividend Investor newsletter. Sorry about the formatting

Quote:
Josh’s View
After years of watching this MLP’s rapid distribution
growth, I was pleased to add Energy Transfer to the
Harvest’s roster at a very attractive yield.
Morningstar’s Take
In our view, Energy Transfer operates one of the best
natural-gas transportation systems in the industry,
and when combined with strong growth prospects,
generous cash distributions, and good cash-flow
growth visibility, we think this is one of the most attractive
master limited partnerships we cover.
The Barnett Shale continues to be the hottest naturalgas
play in the country, and, in our opinion, Energy
Transfer Partners is the best positioned pipeline operator
to benefit from production growth. The partnership
continues to build 42-inch pipes in East Texas,
significantly increasing throughput capacity and
providing shippers with access to major Eastern
markets. The company just announced another $485
million, 42-inch pipe project that, when completed,
would expand Energy Transfer’s takeaway capacity to
nearly 7 billion cubic feet per day (bcf/d). Considering
that recent Barnett Shale production forecasts call
for peak production around 9 bcf/d, Energy Transfer
represents a very large proportion of total capacity.
We’re also pleased with the company’s 2006 purchase
of Transwestern, an interstate pipeline that stretches
from the California-Arizona border east into the
Permian and Anadarko basins plus a line running from
the San Juan basin south into the main line. We think
this is a near-perfect complement to Energy Transfer’s
Texas intrastate pipeline system, and we expect the
partnership to be able to expand its footprint rapidly
because of the deal.
Finally, we think Energy Transfer made a smart move
by partnering with Kinder Morgan KMP to build
the Midcontinent Express Pipeline, which will provide
interstate takeaway capacity for Barnett and Woodford
Shale gas, stretching from north Texas to Mississippi.
By partnering with Kinder, Energy Transfer
gets to learn from one of the best in the business.
Although we are concerned by recent allegations of
manipulation in the natural-gas market, we don’t
believe that these charges, even if true, will have any
material impact on Energy Transfer. It is challenging
to devise a scenario that has more than a trivial impact
on our valuation.
Is It Safe?
Although Energy Transfer pays out most of its cash
flow—typical for MLPs—the bulk of these cash
flows come either from long-term commitments from
producers for transportation capacity and volume
fees, both which are generally stable and predictable.
The firm’s distribution coverage ratio is an aboveaverage
1.3 times, and we believe its debt load (roughly
50% of total capital) is reasonable as well.
Will It Grow?
We expect Energy Transfer’s expansion projects to
raise distributable cash flow at a 15% annual
pace over the next five years. The partnership will be
issuing new units to fund much of the capital
spending required, but even so we anticipate 7.5%
annual growth in per-unit cash distributions.
What’s the Return?
We believe Energy Transfer’s high current yield vastly
understates the firm’s growth potential, and we
expect total returns of about 16%annually from here.oe
Energy Transfer Partners ETP
The Dividend Drill | Josh Peters, CFA, and Jason Stevens
Energy Transfer Ptrs ETP
Star Rating QQQQQ
Moat Narrow
Uncertainty Rating Low
Fair Value ($) 70.00
Dividend Buy ($) 69.00
Current Price ($) 43.12
Dividend ($) 3.58
Yield (%) 8.3
Payout (%) 109
5-Yr Growth (%) 19.7
Stewardship C
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Old 03-31-2009, 03:06 PM   #4
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Yes this is only for after-tax in my case.
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Old 03-31-2009, 03:35 PM   #5
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Thanks Clifp - Josh Peters is making me feel even better about this.

This got on my radar via my Value Line rating method and I purchased a small amount based on that and a small amount of research on a couple of presentations to analysts they had on their web site. As I continue to see positive projections as you show in Josh Peter's estimation, I continue to like it even more.

Now I have the 250 pages in front of me from the March filing of the 10-K for 2008 and see what they say in there.
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Old 03-31-2009, 04:36 PM   #6
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I wish had I the discipline to go through 10-K on all my stock investments. In some case I do but generally not.

I wonder if I had really looked at the financial of the banks a couple of years like you did. I would have concluded that the situation was too dangerous. I guess I figured if the smart guys like Buffett, Josh Peters,and other M* analyst were comfortable...

Oh well it is only money
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Old 03-31-2009, 05:27 PM   #7
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Originally Posted by Running_Man View Post
Thanks Clifp - Josh Peters is making me feel even better about this.
Don't let J.P. influence you one iota either way. I bought his book and enjoyed reading it. I don't think he's dumb. But he has a pretty bad track record. (Doesn't everyone right now?)

Skimming through an old m* dividend newsletter from Jan 08 I see his dividend building portfolio had BAC, USB, BBT, DDR, WFC and XTXI and the harvester portfolio had CSE, ALD, XTEX, LYG, MMA. I don't mean to pick on him since we've all taken our lumps, but those above are nearly a third of his DIVIDEND picks about a year ago. Then again maybe he sold them all shortly thereafter. At one point or another I actually owned seven of those and managed to avoid taking large losses so maybe he did too.
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Old 03-31-2009, 05:35 PM   #8
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Originally Posted by terminator View Post
Don't let J.P. influence you one iota either way. I bought his book and enjoyed reading it. I don't think he's dumb. But he has a pretty bad track record. (Doesn't everyone right now?)

Skimming through an old m* dividend newsletter from Jan 08 I see his dividend building portfolio had BAC, USB, BBT, DDR, WFC and XTXI and the harvester portfolio had CSE, ALD, XTEX, LYG, MMA. I don't mean to pick on him since we've all taken our lumps, but those above are nearly a third of his DIVIDEND picks about a year ago. Then again maybe he sold them all shortly thereafter. At one point or another I actually owned seven of those and managed to avoid taking large losses so maybe he did too.
I also read his book and thought it very good. In general I totally agree with his approach. There is no doubt there is some very bad performance on the list, and I think there was quite a bit of Josh not following his own principles too well on making sure you buy companies that are committed to the dividend. Looking at that list it is shocking to think of some of the losses on those. And that is exactly the type of situation I want to try and avoid at all costs with ETP
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Old 03-31-2009, 06:44 PM   #9
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Originally Posted by Running_Man View Post
And that is exactly the type of situation I want to try and avoid at all costs with ETP
I own several MLPs, but not ETE or ETP. In favor of those is Warren Kelcy and considerable management ownership, as well as the business characteriustics that you mentioned. Against ETP is the it pays IDRs to ETE. Against ETE, IMO, is its debt.

I have several gas pipeline cos, or gas and oil and product pipelines, but none of these are MLPs.

Boardwalk is my favorite gas pipeline business. But while I liked the business of Boardwalk, I did not like the robust IDRs that it pays. So I bought the beneficiary of those IDRs, Loews. Loews is a very well financed and I believe reasonably well managed company, but it pays a miserable dividend and it is has several other businesses, including the long time loser P&C insurance company CNA. So if you need income or you want a concentrated pipeline bet this may not interest you.

This period of credit stress has taught me not to get too cute with debt, or with the details of how assets can be financed, how financing can be rolled over, etc. etc. People who were in a position to understand debtor analysis very well still got massacred. So my plan is to be the hedghog- I may not know a lot, but I know a few things very well. One of those things is that leverage kills. The other is how little I or most anyone else really knows, when the poop starts to fly.

Ha
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Old 03-31-2009, 08:13 PM   #10
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If you haven't already, check out Wachovia's MLP Primer -- Third Edition (Everything You Wanted To Know About MLPs, But Were Afraid To Ask).
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