Energy Transfer is a large North American midstream company.
The distributable cash flow easily covers the 7.5% yield on the MLP.
Future growth prospects appear strong, but historical issues could be a problem for some.
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Energy transfer(NYSE: ET) is one of the largest owners of energy infrastructure in North America. The fees it charges customers to transport oil and natural gas around the world are a reliable support for the master limited company’s high 7.5% yield. Still, the biggest issue that more conservative income investors may have with Energy Transfer is trust. Here’s what you need to know.
Energy Transfer is a little more complex than other pipeline-focused MLPs. Not only does it operate its own collection of midstream assets, but it also manages two other publicly traded MLPs, Soloco LP(NYSE: SOL) and US Compression Partners(NYSE: USAC). It earns fees for doing that, but some might see that obligation as a potential distraction, since the fees only represent about 15% of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
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Through the first nine months of 2025, Energy Transfer’s distributable cash flow covered distribution by a comfortable 1.8x. MLP’s leverage, while higher than some of its peers, is not concerning, with a financial debt-to-EBITDA ratio of approximately 4.2.
Looking ahead, Energy Transfer has $5.5 billion worth of capital investment projects on its books for 2026 alone. Management believes it will support distribution growth of 3% to 5% over the year. That range is the long-term goal as Energy Transfer looks to become a more reliable income investment. There are very good reasons why you might want to buy Energy Transfer while it is trading below $20 a unit.
The future is not the big problem when investing in Energy Transfer; It’s the past. More conservative dividend investors have to accept the events that occurred during the last two major energy industry crises.
In 2020, when the global reaction to the coronavirus pandemic pushed U.S. oil prices below zero, Energy Transfer cut its distribution in half. The goal of deleveraging was noble, but if one had bought the MLP in hopes of a reliable income stream, one would have been sorely disappointed. Distribution is growing again, and above where it was before the cut, but a glass-half-empty view of this decision could keep you on the sidelines.
In the energy crisis of 2016, Energy Transfer decided to buy a competitor, Williams Companies(NYSE: WMB)but he regretted it. Energy Transfer warned that consummating the deal could have required a dividend cut, excessive leverage or both. As part of an effort to thwart the deal it initiated, Energy Transfer issued convertible securities, and its then-CEO purchased a significant amount of the issue. Although the deal was ultimately called off, it appears that the convertibles would have protected their holders from the risk of a dividend cut from Energy Transfer. The negative view of the convertible is that it would have protected insiders at the expense of shareholders.
If those two corporate decisions make you wonder if owning Energy Transfer will keep you up at night, you should probably avoid it. Trusting that management has your back is important when making an investment. And the fact is, there are other options in the midstream space that don’t have similar question marks like that in their past. Some good alternatives could be Enterprise Product Partners(NYSE: EPD) and Enbridge(NYSE: ENB)all of which have decades of annual dividend increases under their belts. It will have to give up some performance: Enterprise returned 6.6% and Enbridge 5.8%. However, more conservative income investors will likely find that trade-off worth it.
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Reuben Gregg Brewer has positions at Enbridge. The Motley Fool has posts on Enbridge and recommends it. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
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