Is Energy Transfer the All-American Dividend Stock for You? Consider This High-Yielder Instead

Investors seeking high yields in the energy sector often turn to master limited partnerships (MLPs) like Energy Transfer (ET) and Enterprise Products Partners (EPD). While ET currently offers a 8% dividend yield versus EPD's 6.9%, the latter emerges as a more reliable income generator with superior tax efficiency. This article examines why conservative investors might prioritize EPD's 26-year distribution growth streak and simpler tax reporting over chasing ET's higher yield.

Dividend Reliability: Growth vs. Volatility

The most striking difference lies in dividend consistency. EPD has increased its payout every year since 1995, navigating industry downturns without cuts. In contrast, Energy Transfer cut its distribution by 14% during the 2020 oil crash and reduced it twice before (2016, 蕹019).

EPD's financial discipline is reflected in its 73.68% distributable cash flow (DCF) coverage ratio (2024), ensuring ample room to sustain dividends. Energy Transfer's coverage ratio, while improving, remains volatile due to its exposure to commodity prices and debt-heavy growth strategy.

Tax Efficiency: Simplicity Matters

Both MLPs require Schedule K-1 tax forms, but EPD's structure reduces friction:
- K-1 Complexity: EPD's simpler capital structure (fewer mergers and legacy units) means its K-1 packages are easier to navigate, especially for investors unfamiliar with MLPs. Energy Transfer, having acquired companies like Cequence Energy (CEQP) and Enable Midstream (ENBL), faces compounded K-1 intricacies for holders of legacy units.
- UBTI Risks: While both MLPs pose Unrelated Business Taxable Income (UBTI) risks in retirement accounts, EPD's business model—focused on fee-based contracts and long-term customer agreements—reduces the volatility that could trigger UBTI thresholds.

Stability in Volatile Markets

During the 2020 crash, EPD's dividend remained intact, supported by its diversified revenue streams (natural gas liquids, petrochemicals). Energy Transfer, meanwhile, relied more on crude oil transport, which collapsed. This underscores EPD's lower commodity price sensitivity.

The Trade-Off: Yield vs. Consistency

• For Aggressive Investors: ET's 8% yield appeals to those willing to tolerate higher risk, such as dividend cuts during crises or complex tax filings.
• For Long-Term Holders: EPD's 6.9% yield paired with 26 years of growth offers a safer, tax-efficient income stream. Its step-up in basis provision also reduces capital gains risk for heirs.

Final Verdict: EPD Edges Out ET for Most Investors

While Energy Transfer's yield is tempting, Enterprise Products Partners delivers superior reliability and tax simplicity. EPD's consistent cash flow, conservative balance sheet (investment-grade credit rating), and avoidance of past dividend cuts make it a safer choice for retirees or conservative portfolios.

Investors prioritizing income predictability over maximizing yield should lean toward EPD. Those comfortable with volatility and tax complexity might hold ET in smaller allocations—but only after mastering its K-1 intricacies.

Actionable Advice:
- Buy EPD for a stable, tax-efficient 6.9% yield with long-term growth potential.
- Avoid ET unless you can tolerate dividend cuts and complex K-1 filings.
- Consider ETFs like AMJ for MLP exposure if you want to avoid K-1s entirely.

The energy sector will always carry risks, but Enterprise Products Partners' track record and structure make it the all-American dividend stock that Energy Transfer cannot match.

Data as of June 2025. Past performance does not guarantee future results. Consult a tax professional before investing in MLPs.