A High-Yielding Dividend Stock with a Strong Growth Trajectory
Energy Transfer (NYSE: ET), a leading master limited partnership (MLP), has announced its latest distribution payment of $0.3225 per unit, a 3.2% increase from the prior year’s payment. This marks the company’s eighth consecutive quarterly distribution increase since the end of 2021.
A Reliable Income Stream
Investors seeking a sizable and steadily rising income stream may find Energy Transfer an attractive option. The MLP’s yield is nearing 8%, making it an appealing choice for those comfortable with investing in an MLP that sends its investors a Schedule K-1 Federal Tax Form each year.
Low-Risk Business Model
Unlike many higher-yielding investments, Energy Transfer’s business model is characterized by low risk. Approximately 90% of its earnings come from stable fee-based sources, such as long-term contracts and government-regulated rate structures. Additionally, the MLP has a conservative payout ratio, generating around $8.5 billion of annual distributable cash flow.
Financial Flexibility
Energy Transfer’s strong financial position allows it to prioritize growth capital spending, which is expected to be around $3 billion to $3.2 billion this year. The company has several projects under construction, including expansions of its Nederland terminal, gas processing plants, pipeline expansions, and natural gas-fired electric generation plants. These projects will provide visibility into its future cash flow growth through 2026.
Growth Opportunities
The MLP has many more projects under development, including its Lake Charles LNG project, Blue Marlin oil export terminal, carbon capture and sequestration projects, and blue ammonia projects. Securing these projects would add fuel to its earnings growth engine. Furthermore, Energy Transfer has the financial flexibility to continue consolidating the midstream sector through strategic acquisitions.
A Sustainable Foundation
Despite its size, Energy Transfer’s payout is on a very sustainable foundation. The company is growing its cash flow, allowing it to increase its distribution, invest in expanding its operations, and maintain a solid financial foundation. With more growth coming down the pipeline, the MLP should have no trouble continuing to increase its payout, making it an attractive option for those seeking an attractive and growing passive income stream.
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