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Energy Transfer's (NYSE: ET) business prints cash. The midstream giant's diversified portfolio of pipelines, processing plants, storage terminals, and export facilities acts as a toll booth for the country's energy superhighway. It is paid fees as oil, natural gas, and other energy commodities flow through its midstream network.
The master limited partnership (MLP) generated a whopping $8.4 billion in cash last year, $4.4 billion of which it distributed to investors. The company has been steadily increasing the amount of cash it sends to investors, enhancing its already lucrative 7.5%-yielding distribution. That large and growing income stream makes Energy Transfer a super investment for those seeking to collect passive income.
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Dishing out more cash
Energy Transfer recently declared its latest quarterly distribution payment. It set the rate at $0.3275 per unit ($1.31 annualized). That's a slight pay bump from last quarter ($0.325 or $1.30 annualized). It also represents a pay raise of more than 3% from the year-ago payment level.
The MLP can easily afford that higher rate. It produced enough cash to cover its distribution by a super-comfy 1.9 times last year. Meanwhile, its distributable cash flow has increased by 10% over the past year, fueled by accretive acquisitions, organic expansion projects, and healthy market conditions. Its cash flow tends to be very stable because 90% comes from steady, fee-based sources.
Energy Transfer also has a rock-solid balance sheet. The MLP's leverage ratio is trending toward the low end of its 4.0-4.5 times target range. That gives it even more financial flexibility to invest in growing its operations while increasing its lucrative distribution.
Plenty of fuel to continue growing
Energy Transfer has invested heavily in expanding its already extensive energy midstream network. The company spent $3 billion on growth capital projects last year and another $3 billion-plus to buy WTG Midstream. Those investments will help grow the MLP's earnings by about 5% this year.
The pipeline company currently plans to invest an additional $5 billion in growth capital projects this year. Its current slate of capital projects, which includes a large natural gas pipeline and additions to export capacity, will enter service through the end of next year. They will significantly boost its earnings growth rate in the 2026-2027 timeframe.