Ultra-High-Yield Midstream MLPs: Why Energy Transfer and Western Midstream Are Top Buys for 2026 and Beyond

For income-driven value investors, midstream master limited partnerships (MLPs) like Energy Transfer (ET) and Western Midstream (WES) represent a compelling opportunity in 2026. These companies combine robust distribution coverage, conservative leverage profiles, and strategic growth initiatives-particularly in AI-linked gas demand and produced water infrastructure-to position themselves as top buys for long-term, high-yield portfolios.

Energy Transfer: A Powerhouse for AI-Driven Energy Demand

Energy Transfer's 2025 performance underscores its resilience and growth potential. The company increased its quarterly distribution by over 3% to $0.3325 per unit in Q3 2025, reflecting confidence in its ability to sustain payouts. While specific Q4 2025 distribution coverage ratios remain undisclosed, the company's operational strength-bolstering by record Adjusted EBITDA and Free Cash Flow-suggests a strong coverage ratio.

Crucially, Energy Transfer is capitalizing on the surging demand for natural gas from AI data centers. In 2025, it secured a 10-year contract to supply up to 450,000 MMBtu/day of gas for CloudBurst Data Centers' 1.2 GW AI-focused facility in Texas. Additionally, it partnered with VoltaGrid to provide 2.3 GW of power for Oracle's AI data centers. These contracts highlight Energy Transfer's strategic pivot to meet the energy needs of AI infrastructure, a market projected to grow at a 31.6% CAGR through 2030.

Financially, Energy Transfer's leverage profile remains manageable. As of September 30, 2025, its debt-to-EBITDA ratio stood at 4.28, supported by $14.8 billion in annualized EBITDA and a $63.9 billion debt load. Analysts view this leverage as "positive at current or lower levels," given the company's ability to generate consistent cash flows. Furthermore, Energy Transfer's forward EV/EBITDA multiple of 7.6x (based on $17.1 billion in 2026 EBITDA estimates) reflects an undervalued proposition for investors.

Western Midstream: A Water Infrastructure Leader with Conservative Leverage

Western Midstream's Q1 2025 distribution coverage ratio of 1.6x-indicating net income 60% higher than dividends-demonstrates its financial discipline. The company maintained its quarterly distribution of $0.910 per unit in Q3 2025, resulting in an annualized payout of $3.64 per unit. While Q4 2025 coverage data is pending, Western Midstream's operational performance, including record Adjusted EBITDA and Free Cash Flow, suggests continued strength.

The company's strategic focus on produced water infrastructure is a key differentiator. In 2025, Western Midstream announced the Pathfinder Pipeline, a 30-inch, 42-mile steel pipeline designed to transport 800 MBbls/d of produced water for disposal in eastern Loving County. This project, part of a $400–450 million investment over 24 months, includes nine new saltwater disposal facilities and large regional gathering systems. These initiatives, supported by a long-term agreement with Occidental Petroleum, ensure capacity for 280 MBbls/d of firm gathering and 220 MBbls/d of firm disposal.

Leverage remains conservative, with S&P Global projecting a 2025 debt-to-EBITDA ratio of 3.0x–3.2x, aligning with 2024's 3.1x. Post-acquisition of Aris Water Solutions, Western Midstream reaffirmed its 2025 guidance, maintaining pro forma leverage near 3.0x. Its forward EV/EBITDA multiple of 8.1x (based on $2.79 billion in 2026 EBITDA estimates) further underscores its undervaluation.

Why These MLPs Are Top Buys for 2026

Both Energy Transfer and Western Midstream offer a rare combination of high yields (8.1% and 9.5% as of late 2025, respectively) and strong financial fundamentals. Energy Transfer's alignment with AI-driven gas demand and Western Midstream's leadership in produced water infrastructure position them to capitalize on secular trends in energy infrastructure. Their conservative leverage ratios and robust distribution coverage ensure sustainability, while their forward EV/EBITDA multiples suggest significant upside potential.

For income investors seeking long-term value, these MLPs represent a rare opportunity to participate in high-yield, growth-oriented energy plays with strong balance sheets and clear strategic direction.