Once Bitten, Twice Shy
“Once bitten, twice shy” is an idiom that describes a person who becomes more cautious after experiencing disappointment or hurt, often applicable in various contexts, including investing. For dividend investors, this saying rings particularly true, especially following a dividend cut—a situation that can cause lasting apprehension.
Energy Transfer and Dividend Concerns
Energy Transfer (ET), which cut its dividend in 2020 mainly due to the pandemic’s economic impacts, remains under the scrutiny of equity income investors who fear another dividend reduction. Such a past event amplifies hesitation toward investing in companies with a history of cuts.
Current Dividend Trends
Post the 2020 cut, Energy Transfer’s annual dividend was reduced to $0.61 per share, but by the end of 2021, it had climbed to $0.70—demonstrating a renewed commitment to dividend growth. Energy Transfer currently offers a yield of 6.8% and has achieved 19 consecutive quarters of dividend increases, rekindling investor confidence.
Dividend Security Indicators
While there’s no foolproof protection against future cuts in any dividend stock, Energy Transfer appears stable. The company reported a robust distributable cash flow (DCF) coverage ratio of 2.2 at the end of Q2, indicating that the dividend is manageable and not a financial burden. Coverage ratios below 1 are typically warning signs for investors.
Debt Management and Growth Prospects
Energy Transfer’s net debt to EBITDA ratio, targeted between 4.0x and 4.5x, stood at 4.4x last year but is expected to improve. A downward trend in debt ratios enhances cash flow flexibility, enabling growth initiatives or acquisitions while supporting long-term dividend stability.
Conclusion
For investors contemplating Energy Transfer, the message is clear: despite past missteps, the company’s current trajectory suggests a commitment to dividend growth and financial health, mitigating fears of repeating historical disappointments.
