As a savvy investor, I’ve built a robust portfolio generating substantial passive income. One standout performer is Energy Transfer (NYSE: ET), which has become my largest source of passive income. This master limited partnership’s (MLP) impressive distribution growth and high yield have made it a cornerstone of my investment strategy.
My history with Energy Transfer dates back to early 2020, when I initially invested just before the pandemic hit. Although the timing was unfortunate, as the MLP subsequently slashed its distribution to conserve cash, this move ultimately proved beneficial. Energy Transfer utilized the retained cash to fortify its financial foundation, repaying debt and driving down its leverage ratio. This strategy has yielded significant dividends for investors.
Today, Energy Transfer boasts a strong investment-grade balance sheet with a leverage ratio within its target range of 4.0-to-4.5x. This improved financial flexibility has enabled the company to rebuild its payout, exceeding pre-pandemic levels, and consolidate the midstream sector through strategic acquisitions. Notably, its $7.1 billion purchase of Crestwood Equity Partners last year allowed me to merge two top income positions into a single, stronger investment.
Energy Transfer checks all the boxes for me. It generates substantial, stable cash flow, with approximately 90% of its adjusted EBITDA derived from fee-based sources. The MLP’s well-balanced asset mix reduces risk, while its conservative distribution policy allows it to retain significant cash for growth initiatives, debt reduction, and unit repurchases.
With a strong balance sheet and growing distributable cash flow, Energy Transfer is poised to increase its payout by 3% to 5% annually. The company’s recent acquisitions, including Lotus Midstream and WTG Midstream, will further enhance its growth rate. I’m confident that Energy Transfer will continue to deliver a steadily rising distribution, supporting a monster yield of nearly 8%.
Given its solid financial foundation, stable cash flow, and growth prospects, I plan to maintain a large position in Energy Transfer and potentially add to it in the future. This investment has become a reliable source of passive income, and I’m confident it will continue to generate substantial returns.
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