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Investing in dividend stocks can be a great way to make passive income. On average, every $1,000 you invest will produce about $15 of dividend income each year (based on the S&P 500's current dividend yield of around 1.5%). The more money you invest, the more passive income you'll collect.
You can significantly boost your annual income tally by investing in stocks with higher dividend yields. Investing in Energy Transfer (NYSE: ET) is one way to supercharge your passive income production. The master limited partnership (MLP) currently yields just about 7.5%. At that rate, every $1,000 invested in the MLP would produce $75 of passive income each year.
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An income-producing machine
Energy Transfer is one of the country's largest energy midstream companies. It has a nationwide footprint of pipelines and other infrastructure that transport oil, natural gas, and related energy products from production basins to end users.
The company's vast network of pipelines, processing plants, storage terminals, and export facilities generates very stable cash flow. About 90% of its earnings comes from fee-based sources like government-regulated rate structures and long-term, fixed-fee contracts.
Energy Transfer's stable midstream assets produced nearly $8.4 billion of cash last year. The MLP distributed about $4.4 billion of that money to investors. It retained the rest to invest in expansion projects and maintain a strong balance sheet.
The company's diversified sources of stable cash flow, low payout ratio, and rock-solid financial profile put its high-yielding distribution on a very solid foundation.
A little bit more income each quarter
Energy Transfer currently pays its investors a quarterly cash distribution of $0.325 per unit ($1.30 annualized). The MLP aims to increase its payment by 3% to 5% per year (it has raised the payout by 3.2% over the past year). It typically hikes its distribution by $0.0025 per unit each quarter (or $0.01 annualized). That provides investors with a steadily rising stream of passive income.
The MLP has plenty of fuel to grow its distribution. It's investing heavily in expansion projects to support increasing demand for oil and gas. Energy Transfer invested $3 billion into growth projects last year and plans to spend another $5 billion this year. The company is building a major new natural gas pipeline, several more natural gas processing plants, and expanding its export capacity. These projects should enter commercial service through the end of next year, contributing significant incremental cash flows over the next few years.