Energy Transfer: A High-Yield MLP for Tax-Advantaged Income in 2025

Energy Transfer's MLP structure offers a critical edge for investors. By operating as a pass-through entity, the partnership avoids corporate-level taxes, passing income directly to unitholders. This structure enhances after-tax returns, particularly for investors in higher tax brackets. For Q3 2025, Energy Transfer reported a quarterly distribution of $0.3325 per common unit, annualized at $1.33, representing a 3% increase from the prior year. The MLP's ability to generate distributable cash flow (DCF) remains strong, with $1.90 billion in DCF for the quarter, despite a slight decline from $1.99 billion in Q3 2024.

The partnership's tax advantages are further amplified by its diverse asset base. Approximately 40% of its Adjusted EBITDA is derived from natural gas-related infrastructure, while no single business segment contributes more than one-third of total EBITDA. This diversification reduces exposure to sector-specific volatility and supports consistent cash flow.

A key concern for income investors is whether Energy Transfer can sustain its high yield. For Q3 2025, the distribution coverage ratio stood at just under 1.7x, calculated by dividing DCF ($1.9 billion) by the $1.14 billion in distributions paid. While this ratio is healthy, it reflects a slight decline from prior years, driven by one-time items such as a $43 million tax settlement. However, Energy Transfer's long-term outlook is bolstered by its capital allocation strategy. The partnership plans to invest $5 billion in growth projects in 2026, with a focus on natural gas infrastructure in Texas and across the U.S. These projects aim to enhance throughput and secure long-term cash flow streams. Additionally, insider confidence is evident: Director Kelcy Warren recently purchased $16.95 million worth of shares, and insiders now own 3.28% of the company.