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This Shake-up Could Lead to Tremendous Dividend Growth

By Taylor Muckerman and Joel South – Aug 7, 2013 at 9:47AM

NYSE: SE

Spectra Energy

When parent companies drop down assets to MLPs, both parties tend to benefit. Here is a perfect example.

Quarterly earnings numbers weren't the only thing investors in Spectra Energy (SE) and Spectra Energy Partners (SEP) were greeted with yesterday morning. In tandem with the release, management announced a significant deal between the two in which Spectra Energy will drop down a considerable amount of assets to Spectra Energy Partners. In return, Spectra Energy will be receiving a blend of cash, equity, and a large chunk of debt taken off its books.

These types of transactions highlight the unique relationship between a parent and its MLP subsidiary. Deals such as these free up the parent to pursue larger growth opportunities without forcing it to sell assets completely. Yes, Spectra Energy is no longer running its storage and transmission business, but it will continue receiving distributions from its cash flow through its ownership stake in Spectra Energy. Motley Fool analyst Taylor Muckerman covers this deal and its effect on shareholders in the video below.

Joel South has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Spectra Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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