In early September, I highlighted Energy Transfer stock as an investment that offers good value along with a generous dividend. The oil price has wavered since that article was published, and that’s taken a toll on the Energy Transfer share price.
I’m standing by my bullish assessment of Energy Transfer stock. However, investors should know that it might take a long time for the share price to recover. Plus, you’ll need to monitor the oil price closely as this will continue to impact the company and the stock.
All of that being said, I invite bona fide contrarians to consider the merits of owning Energy Transfer stock for the long run. Holding deep-value stocks isn’t easy, but the rewards can be tremendous.
A Closer Look at Energy Transfer Stock
I won’t be easy to convince momentum-focused traders to turn bullish Energy Transfer stock. After all, the share price has been in a steady downtrend since June.
On the other hand, we’ve seen downtrends like this before. In late 2008, Energy Transfer stock had fallen to the $4 area. Back then, only the most courageous and/or foolhardy investors dared to touch the stock.
Those investors were handsomely rewarded, however. By May of 2015, Energy Transfer stock breached the $34 level. Just as the oil price tends to go through up and down cycles, so do Energy Transfer shares.
Energy Transfer stock also fell to $7 in February of 2016 but then reached $19 by the end of that year. With Energy Transfer shares trading at $5 and change in October of 2020, this might present a similar opportunity for bold contrarians.
Unlike some other energy-sector companies that have struggled during the Covid-19 pandemic, Energy Transfer maintained a generous dividend yield throughout much of 2020’s second half.
How generous? Even among energy firms, which are often known for offering high yields, Energy Transfer’s forward annual dividend yield of around 19% was simply outstanding.
For months, I’d been watching people on social media predict that Energy Transfer would slash its dividend yield. And indeed, they were correct about that. On Oct. 26, the company announced an upcoming quarterly cash distribution which would translate to 61 cents on an annualized basis.
If the current share price is around $5 or $6, this would equate to an annual yield that’s close to 10%. And that’s still better than what many energy companies have to offer. Just to give you a randomly chosen example, the forward annual dividend yield for ConocoPhillips (NYSE:COP) stock is 5.29%.
An End and a New Beginning
According to a fresh press release, Energy Transfer’s getting a makeover at the executive level with not just one, but two new CEO’s.
Starting on the first day of 2021, Mackie McCrea and Tom Long will serve as co-chief executive officers at Energy Transfer. At the same time, co-founder Kelcy Warren will step down from the CEO position.
This marks the end of an era as Warren co-founded Energy Transfer way back in 1996. At that time, the company only had 20 employees and around 200 miles of natural gas pipelines.
Warren helped develop Energy Transfer into an international company with a sizable and diversified portfolio of energy assets. Fortunately, Warren stated that he will “continue to be intimately involved in the strategic growth of Energy Transfer.”
I feel that tapping McCrea and Long for the co-CEO roles was a good decision. They’ve both been part of the Energy Transfer team for years and have deep industry experience. Hopefully, the proverbial passing of the baton will mark the beginning of a new, more prosperous era for this iconic energy firm.
The Bottom Line
Things are changing quickly in the world, in the energy sector and specifically at Energy Transfer.
But some things haven’t changed. Energy Transfer stock continues to offer a terrific dividend yield. And the company’s new co-CEO’s will have the experience and the know-how to lead this company through its inevitable turnaround.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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