Please ensure Javascript is enabled for purposes of website accessibility

No Stupid Questions: What's the Difference Between Spectra Energy Corp. and Spectra Energy Partners, LP?

By Justin Loiseau – Feb 6, 2014 at 10:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Trust me -- if you don’t know what makes Spectra Energy Partners Corp. different from Spectra Energy Partners, LP, you’re not the only one.

Source: Spectra Energy Corp. 

There's just a one-word difference between Spectra Energy Corp. (SE) and Spectra Energy Partners, LP (SEP), but the two companies could not be more different. For natural gas investors looking for dividends, knowing the relationship between these two companies is crucial. Let's start at the beginning.

Spinning off a spin-off
In 2007, Duke Energy Corporation (DUK 2.48%) spun off its natural gas businesses into Spectra Energy Corp. Following Duke Energy Corporation's Board approval, then-CEO Jim Rogers noted: "Today, we have taken some of the final steps to unlock the value of our power and gas businesses as stand-alone companies. We believe that over the long term, our investors will reap greater value than they would have received had we not separated the company." 

The distribution was tax-free for Duke Energy Corporation, and it allowed the utility to focus more exclusively on its electricity business. But while we'll never know for sure whether Duke Energy Corporation would've been better off sticking with Spectra Energy Corp., Spectra's share price has soared ahead of Duke Energy Corporation's over the past five years.

DUK Chart

DUK data by YCharts.

But Spectra Energy Corp. is only one piece of the puzzle. In the same year Duke Energy Corporation spun off Spectra, Duke's spin-off began a spin-off of its own -- and Spectra Energy Partners, LP was born.

Spectra Energy Partners, LP was an answer to investors' insistence that Spectra Energy Corp. make the most of its tax-free potential. Spectra Energy Partners enjoys a special "Master Limited Partnership" (MLP) tax status since it derives 90% or more of its cash flows from natural resources  -- in this case, natural gas.

While Spectra Energy Corp. provides capital to its MLP and receives income distributions in return, Spectra Energy Partners, LP doesn't have to pay a single cent on its initial profit -- meaning more money to reinvest or distribute to shareholders. 

Spectra Energy Partners, LP is 84% owned by its big brother, despite Spectra Energy Corp.'s complete dropdown of all remaining U.S. transmission, storage, and liquid assets last November. 

The split has been good for both companies, with shares soaring in June 2013 following Spectra Energy Corp.'s announcement that it would complete its asset drop-down by the end of the year. That single press release pushed stock prices off the pathetic performance of the Dow Jones U.S. Utilities Index, and around 10 percentage points ahead of the S&P 500's excellent year.

SE Chart

SE data by YCharts.

Which should you buy?
Spectra Energy Corp. and Spectra Energy Partners, LP are both attractive investing options. Each offers a natural gas investment that should continue to grow alongside America's expanding natural gas infrastructure.

Spectra Energy Partners, LP enjoys stable cash flow from its fee-based businesses, which include more than 17,000 miles of transmission and gather pipelines, 150 billion cubic feet of natural gas storage, and a bonus asset of 4.8 million barrels of crude oil storage. 

Source: Spectra Energy Partners, LP.

But investing in Spectra Energy Partners, LP might be missing the forest for the trees. Although the MLP offers stability, Spectra Energy Corp. enjoys nearly full ownership of Spectra Energy Partners, while expanding its own diversity further.

The company also has a 50% stake in MLP DCP Midstream (DCP 0.51%), the largest gas gatherer and processer in the United States. Its Westcoast Energy natural gas utility in British Columbia, Canada, further spreads the company's geographic diversity while its Great Lakes-area Union Gas company is the second-largest gas distributor in Canada. These Canadian assets alone amount to 39% of Spectra Energy Corp.'s EBITDA. 

Although Spectra Energy Partners, LP's current 4.7% dividend yield beats out its big brother's by a full percentage point, long-term investors looking for dynamic diversification will be better treated by Spectra Energy Corp.

Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends DCP Midstream Partners, LP and Spectra Energy. Try any of our Foolish newsletter services free for 30 days. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Spectra Energy Corp Stock Quote
Spectra Energy Corp
SE
Spectra Energy Partners Stock Quote
Spectra Energy Partners
SEP
Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$95.33 (2.48%) $2.31
DCP Midstream, LP Stock Quote
DCP Midstream, LP
DCP
$37.76 (0.51%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.