Time to Tap into a Juicy Yield: 3 Compelling Reasons to Invest in Energy Transfer
As interest rates are poised to dip in the coming years, savvy investors are on the hunt for high-yielding investments that can deliver attractive returns. One hidden gem that fits the bill is pipeline operator Energy Transfer (NYSE: ET), boasting an impressive 7.8% forward yield.
A Yield That’s Hard to Resist
Energy Transfer’s generous distribution is a major draw for income-oriented investors. The master limited partnership (MLP) currently pays out a $0.32 quarterly distribution, with plans to increase it by 3% to 5% annually. As an MLP, Energy Transfer’s distributions are tax-deferred, providing a significant advantage over traditional dividend-paying stocks. With a strong balance sheet and a distribution coverage ratio of over 1.8 times, investors can rest assured that this yield is both sustainable and likely to grow.
Growth Opportunities Abound
Energy Transfer is primed for growth, with a massive backlog of projects set to come online in the next two years. The company plans to invest around $3.1 billion in growth projects this year, targeting a 12% return on investment. This could lead to a significant boost in earnings before interest, taxes, depreciation, and amortization (EBITDA) of over $370 million per year. Additionally, Energy Transfer is well-positioned to capitalize on the increasing energy demands of artificial intelligence (AI)-focused data centers, having signed deals with power companies to supply more natural gas and engaging in discussions with cloud computing companies.
A Valuation That’s Too Good to Pass Up
Despite its impressive midstream system, growth opportunities, and solid financial footing, Energy Transfer’s stock trades at a discounted valuation compared to its peers. With an enterprise-value-to-EBITDA (EV/EBITDA) multiple of 8.1 times based on 2025 estimates, the company’s stock is undervalued compared to its historical levels and the broader MLP midstream space. As the industry continues to improve its financial health, Energy Transfer’s stock could be due for a re-rating in the coming years.
Don’t Miss Out on This Opportunity
Given Energy Transfer’s attractive yield, solid growth prospects, and undervalued stock, now may be the perfect time to invest. With its strong balance sheet, growing distribution, and promising growth opportunities, Energy Transfer stock looks like a compelling buy for income-oriented investors.
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