Units of midstream master limited partnership Energy Transfer (NYSE:ET) were down by as much as 10% in early afternoon trading on Oct. 27. There was no particular news out today that put investors in a selling mood, but an update after the close on Oct. 26 was definitely not good reading.
At 5:30 p.m. EDT yesterday, Energy Transfer, in a very short news release, let investors know that it was going to release earnings on Nov. 4. And that it was going to pay a third-quarter distribution of $0.1525 per unit. That got investors a little upset, given that the previous quarter's distribution was $0.305 per unit. Effectively, Energy Transfer has cut its distribution by a whopping 50%. Not surprisingly, investors were displeased with that news.
That said, the units were yielding around 20% before the cut, so Wall Street was pretty much expecting this outcome. And with a material debt load, large spending plans through the rest of 2020 and in 2021, and the energy sector headwinds caused by COVID-19, it's not shocking that Energy Transfer would need to free up some cash. The easiest way to do that, unfortunately for income-focused investors, was cutting the distribution.
There are a lot of moving parts at Energy Transfer and much depends on the path of the global pandemic. Most investors are probably better off on the sidelines here for now. The distribution cut was pretty much expected, but it doesn't appreciably improve the big-picture outlook here.