Why Is Enbridge Energy Trading at a Distribution Yield of 15%?

Will Enbridge Energy Partners' 4Q15 Results Halt Its Fall?

(Continued from Prior Part)

Flat 4Q15 distributions

On January 29, 2016, Enbridge Energy Partners (EEP) declared flat quarterly distribution per unit for 4Q15. The company announced a quarterly distribution per unit of $0.58—the same as its 3Q15 distribution and 2.3% higher compared to 4Q14. Enbridge Energy Partners only increased its distributions three times in the last 12 quarters. Its yearly distribution per unit in 2015 grew 4.3% compared to its 2014 distribution. Enbridge Energy Partners has an annual distribution growth target of 2%–5%.

Enbridge Energy Partners has fallen 32% in 2016

So far, Enbridge Energy Partners has fallen 32% in 2016. In comparison, the Alerian MLP ETF (AMLP) has fallen 30% during the same period. The sector’s fall follows the fall in energy commodity prices. Over the last 12 months, Enbridge Energy Partners generated total returns of -50%. In comparison, Plains All American Pipeline (PAA), ONEOK Partners (OKS), and Williams Partners (WPZ) have returned -56%, -27%, and -57%, respectively, over the 12-month period. The above graph compares the total returns for Enbridge Energy Partners, its peers, and AMLP over the past year.

The decline in Enbridge Energy Partners’ stock price pushed its yields higher. Currently, it trades at a distribution yield of 14.9%.

Distribution coverage

Enbridge Energy Partners’ distribution coverage ratio for 3Q15 was 0.96x. It had a coverage ratio of 0.9x for 2014. Enbridge Energy Partners expects its 2015 full-year coverage to be 0.9x–0.96x. It aims for a long-term coverage ratio greater than 1.0x.

The distribution coverage is the ratio of distributable cash flow to total distributions. A ratio below 1.0x is considered risky. It shows that the MLP is distributing more cash than it generates. However, this can’t continue in the long run. Enbridge Energy Partners’ low coverage ratio likely caused its flat distributions in 4Q15.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Could Growth Projects Drive Enbridge Energy Partners’ 4Q15 Earnings?

• Part 2 - How Have Enbridge Energy Partners’ Segments Performed?

• Part 4 - Mixed Results: Half of the Analysts Rate Enbridge Energy a ‘Buy’