Prediction: With an 8% Yield and Dividend Increases Ahead, Now Is the Time to Buy Energy Transfer

Energy Transfer (ET) is making headlines as one of the highest-yielding stocks in the energy sector, offering investors an 8% dividend yield as of May 2025. This isn’t just a fleeting opportunity—it’s a compelling entry point into a company with a proven track record of dividend growth, robust financials, and projects poised to fuel future returns. Let’s dissect why now could be the moment to take a position in Energy Transfer.

The Dividend Machine: 8% Yield and Growth in Sight

Energy Transfer’s dividend yield of 8% is already eye-catching, but what truly sets it apart is its commitment to annual increases. The April 2025 dividend hike of 3%—boosting the quarterly payout to $0.32875 per share—aligns with a three-year average of 3%-5% annual raises. With a 2.0x distributable cash flow (DCF) coverage ratio, the dividend is well-covered by earnings, reducing the risk of cuts.

The dividend’s sustainability is further bolstered by 90% of EBITDA coming from fee-based contracts, insulating the company from volatile commodity prices. This stability, combined with a deleveraged balance sheet (now the “strongest in its history”), positions ET as a dividend stalwart in an otherwise uncertain energy landscape.

Financial Fortitude: A Balance Sheet Built for Dividend Growth

Energy Transfer has spent years reducing debt, and the results are clear. Its dividend coverage ratio of 1.5x means cash flows comfortably exceed distribution obligations. Even as it invests in growth projects, the company maintains a forward EV/EBITDA multiple of 7.7x, far below the midstream MLP average of 13.7x. This undervaluation suggests the market hasn’t yet priced in ET’s full potential.

Despite macroeconomic headwinds, Energy Transfer delivered 6% year-over-year EBITDA growth in Q1 2025 to $4.1 billion, with crude, LNG, and natural gas volumes all rising. Full-year guidance remains strong, with EBITDA projected between $16.1 billion and $16.5 billion.

Growth on the Horizon: LNG and Data Centers Fuel the Future

Energy Transfer isn’t resting on its dividend laurels. The company is investing $750 million in EBITDA-generating projects by 2026–2027, including its Lake Charles LNG facility and partnerships with hyperscale data centers. These projects leverage its existing infrastructure, ensuring high returns (mid-teens IRR) while minimizing execution risk.

Upcoming milestones include finalizing gas-supply agreements for Texas and Arizona data centers by late May or June 2025—a key catalyst that could lift investor confidence. Meanwhile, the LNG terminal is on track to begin exports in 2026, adding another revenue stream.

Risks to Consider

No investment is risk-free. Energy Transfer’s exposure to natural gas prices and interest rates remains a concern, though its fee-based contracts and low leverage mitigate these risks. Additionally, regulatory hurdles or delays in project approvals could impact growth timelines. Investors should monitor these factors closely.

Conclusion: A Rare Blend of Yield, Growth, and Value

Energy Transfer’s 8% dividend yield, paired with a clear path to 3%-5% annual dividend hikes, makes it a standout income play. Backed by 90% fee-based EBITDA, a deleveraged balance sheet, and high-return projects, ET offers both safety and growth. At a 7.7x EV/EBITDA multiple, the stock is undervalued relative to its peers, suggesting significant upside potential.

With $750 million in EBITDA accretion from growth projects and upcoming catalysts like data center agreements and LNG exports, now is the time to act. The dividend machine isn’t just yielding—it’s firing on all cylinders. For income-focused investors seeking a blend of stability and growth, Energy Transfer deserves a serious look.