Spectra Energy Partners (SEP): High 6.8% dividend yield

Industry: Energy–Oil & Gas Storage & Transportation; P/D = 16.6; P/CF = 8.0

Spectra Energy Partners LP (SEP: Current Price 44.97) is a master limited partnership operating as an investment arm of Spectra Energy Corp. Spectra Energy Partners LP transports natural gas through interstate pipeline systems, and also stores natural gas in underground facilities in the U.S. Spectra’s operations in the U.S. and Canada include more than 21,000 miles of pipeline, 300 BCF (billion cubic feet) of natural gas storage, and 4.8 million barrels of crude oil storage.

Spectra recently completed multiple capital expansion projects, which will bolster 2017 sales and profits. Lower natural gas and commodity prices and higher operating expenses hurt earnings in 2016.

Sales will likely advance 8% and EPS will rise 8% to $3.42 in 2017. Spectra’s price-to-dividend ratio of 16.6 translates to a dividend yield of 6.8%. With a price-to-cash flow ratio of 8.0, SEP shares are clearly undervalued. The company has been hiking the dividend every quarter during the past several years and will very likely continue the increases.

President Trump will likely ease regulations allowing companies to build pipelines in the U.S. I expect SEP to rise 38% and reach my Min Sell Price of 62.06 within one year. Buy SEP at the current price.

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