Should You Buy Energy Transfer (ET) or a High-Yield Alternative in 2025?

The energy infrastructure sector remains a magnet for income-focused investors, but navigating its risks and rewards requires careful analysis. Energy Transfer LP (ET), one of the largest midstream energy companies, offers an 8% dividend yield as of 2025. However, its high debt load and sector-specific risks have sparked debates about whether investors should consider alternatives. Let’s dissect ET’s strengths and weaknesses, then evaluate its top high-yield rivals to help you decide.

Energy Transfer (ET): A High-Yield Play with Compromises

Energy Transfer’s dividend yield of 8% (as of 2025) is undeniably attractive, fueled by its vast network of pipelines, storage facilities, and terminals. The company’s recent projects, such as the Sabina 2 Pipeline expansion and the Cloudburst Data Center agreement, signal growth potential. Its Adjusted EBITDA rose 8% year-over-year to $3.88 billion in Q4 2024, supporting its payout.

However, ET’s $59.7 billion in total debt raises red flags. Its leverage ratio of 3.6x and debt-to-equity ratio of 1.72 are among the highest in the sector, squeezing liquidity buffers. While its interest coverage ratio of 2.9x remains勉强 sufficient, any earnings downturn or rising interest rates could strain its ability to service debt.

Top High-Yield Alternatives to ET

1. Enterprise Products Partners (EPD): The "Safe" Dividend Aristocrat

• Dividend Yield: 6.5%
• Key Strengths:
• 26-year dividend growth streak with no cuts since its IPO.
• Over 90% of cash flow from fixed-fee contracts, reducing commodity price exposure.
• BBB+ credit rating and a conservative payout ratio of ~75% of distributable cash flow.
• Growth: Expanding its NGL export capacity through projects like the Nederland Terminal, which could boost EBITDA by 12% in 2025.

2. Plains All American Pipeline (PAA): High Yield with Permian Exposure

• Dividend Yield: 8.0%
• Key Strengths:
• Controls ~50% of its cash flow from the Permian Basin, a shale region critical to U.S. oil production.
• Self-funded business model with minimal debt reliance.
• Risks:
• "Borderline Safe" dividend rating due to exposure to oil price volatility.
• Has cut its distribution three times since 2016 to preserve sustainability.

3. CrossAmerica Partners (CAPL): The Highest Yielder, but Risky

• Dividend Yield: 8.9%
• Key Strengths:
• Benefits from stable fee-based revenue from fuel distribution and convenience store leases.
• Operates in a defensive sector (motor fuels) with low volume risk.
• Risks:
• "Borderline Safe" rating due to reliance on variable fuel margins, which can shrink during economic downturns.

Why the Alternatives Outshine ET for Many Investors

1. Debt Management:

2. ET’s debt burden is a double-edged sword. While its $1.98 billion in Q4 2024 distributable cash flow supports dividends, its debt-to-equity ratio is 1.72x, compared to EPD’s 1.05x and PAA’s 1.21x.

3. Dividend Safety:

4. EPD and MPLX (7.2% yield) have "Safe" or "Borderline Safe" ratings, backed by diversified revenue streams. CAPL’s 8.9% yield comes with a "Borderline" rating, requiring investors to accept higher risk for extra income.

5. Valuation:

6. ET trades at a P/DCF of ~12, slightly above its peers. EPD and PAA trade at P/DCF multiples of ~9–10, suggesting undervaluation.

When to Choose ET Over Alternatives

• You’re bullish on ET’s execution: If you believe its Permian Basin expansions and LNG projects (e.g., the Chevron SPA agreement) will boost cash flow, ET’s yield and growth potential may justify its risks.
• You prioritize liquidity: ET’s larger market cap ($35 billion vs. EPD’s $30 billion) offers greater trading flexibility.

Conclusion: Balance Yield with Safety

The decision hinges on risk tolerance and yield expectations:
- For safety-focused investors: EPD is the clear choice. Its 6.5% yield, pristine balance sheet, and 26-year dividend growth streak offer stability without compromising income.
- For high-yield seekers: PAA or CAPL deliver 8%+ yields but require monitoring oil prices and economic conditions.
- Beware of ET’s debt: While its 8% yield is tempting, its leverage ratio and BBB credit rating make it a high-risk bet unless you’re confident in its ability to deleverage.

Final Recommendation:
- Buy EPD if you prioritize dividend safety and long-term growth.
- Consider PAA for Permian exposure and higher yield, but monitor oil prices.
- Avoid ET unless you’re willing to bet on aggressive growth offsetting its debt burden.

The energy infrastructure sector’s future remains tied to demand for fossil fuels and the transition to renewables. For now, dividend sustainability and financial health, not just yield, should guide your choice.