Energy Transfer: A High-Yielding Income Stock with a Bright Future
A Raise for Investors
Energy Transfer, a leading master limited partnership (MLP), is once again increasing its quarterly cash distribution to $0.325 per unit, or $1.30 annualized. This marks a 3.2% increase from last year’s payment and pushes its yield above 6.3%, significantly higher than the S&P 500’s 1.2% dividend yield.
A Sustainable High-Yielding Payout
Energy Transfer’s high-yielding payout is built on a solid foundation. The MLP generates approximately $8.5 billion of distributable cash flow each year, with 90% of its earnings coming from predictable fee-based sources. This stable cash flow easily covers its distribution outlay, leaving around $4 billion each year for growth projects, debt repayment, acquisitions, and unit repurchases.
A Strong Balance Sheet
Energy Transfer’s balance sheet is also impressive, with a leverage ratio expected to be in the lower half of its 4.0-to-4.5 target range this year. This supports its investment-grade credit ratings and provides financial flexibility for accretive acquisitions or unit repurchases in the future.
Investing in Growth
The MLP is investing heavily in expanding its midstream footprint, with a planned spend of $2.8 billion to $3 billion last year on capital projects. The recently approved $2.7 billion Hugh Brinson Pipeline is expected to be completed by the end of 2026, supplying incremental cash flow to support continued distribution increases. Additionally, Energy Transfer has several more expansion projects under development, including Lake Charles LNG, an offshore oil export facility, carbon capture and sequestration projects, and blue ammonia hubs.
Acquisitions and Growth
Energy Transfer has a long history of making accretive acquisitions that enhance its operations and increase its cash flow per share. The recent acquisition of WTG Midstream, for example, will add $0.04 per share to its distributable cash flow this year, increasing to $0.07 by 2027.
An Attractive Income Stream
With its stable cash flow, strong balance sheet, and growth-focused investments, Energy Transfer is an excellent option for investors seeking an attractive and steadily rising income stream. As the MLP continues to invest in its operations and expand its midstream footprint, its high-yielding payout is likely to continue to head higher in the future.
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