Energy Transfer: A Steady Stream of Cash for Investors
Thursday, Jan 30, 2025 3:18 pm ET
1min read Energy Transfer (NYSE: ET) continues to reward its investors with a steady stream of cash, as the company recently announced an increase in its quarterly cash distribution. The master limited partnership (MLP) is boosting its payout to $0.325 per unit, or $1.30 annualized, up from last quarter's level of $0.3225 per unit, or $1.29 annualized. This marks a 3.2% increase over the year-ago payment, pushing the yield above 6.3%. This high-yielding payout is several times higher than the S&P 500's 1.2% dividend yield, making Energy Transfer an attractive income stock for those comfortable with investing in an MLP that sends its investors a Schedule K-1 Federal Tax Form each year.
Energy Transfer's ability to consistently increase its cash distributions is driven by several key factors. The company generates approximately $8.5 billion in distributable cash flow annually, with 90% of its earnings coming from predictable fee-based sources. This stable cash flow allows Energy Transfer to easily cover its distribution outlay of around $4.5 billion, while retaining about $4 billion each year for growth projects and discretionary opportunities such as debt repayment, acquisitions, and unit repurchases. The company's strong financial profile, with an expected leverage ratio in the lower half of its 4.0-to-4.5 target range this year, supports its investment-grade credit ratings and provides financial flexibility for accretive acquisitions or unit repurchases.
Energy Transfer's high-yielding payout is further supported by the company's growth projects and capital expenditures. The MLP planned to spend $2.8 billion to $3 billion last year on capital projects, including the recently approved $2.7 billion Hugh Brinson Pipeline, which it expects to complete by the end of 2026. These projects will supply the company with incremental cash flow as they come online, supporting continued distribution increases.
Energy Transfer's stable cash flow, fee-based earnings structure, and growth projects all contribute to the company's ability to consistently increase its cash distributions to investors. The company's high-yielding payout, combined with its strong financial profile and growth prospects, makes it an attractive income stock for investors seeking a steady and attractive income stream.
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