Energy Transfer (ET 0.20%) offers investors a monster payout these days. The master limited partnership (MLP) has a distribution yield that currently clocks in at 8.5%. That's more than double the average in the energy sector and over four times the S&P 500's yield.

One factor driving Energy Transfer's high yield is a steady stream of big-time raises over the past year. And more increases could be coming down the pipeline, making it an attractive option for those seeking a big-time passive income stream.

The big boosts continue

Energy Transfer recently declared its latest cash distribution to investors. The MLP will pay $0.265 per unit for the third quarter ($1.06 per unit annualized). With the unit price around $12.50, that works out to a yield of 8.5% -- a 15% increase from last quarter's 7.4% yield. 

The new quarterly distribution is more than 70% above what Energy Transfer paid in the year-ago quarter. That's part of the pipeline company's plan to return additional value to investors while maintaining its leverage target in the range of 4 to 4.5 times debt-to-EBITDA (or earnings before interest, taxes, depreciation, and amortization).  

Energy Transfer can easily afford that higher rate. The company generated enough cash to cover its second-quarter distribution by 2.65 times, enabling it to produce $1.17 billion of excess cash after paying its distribution. That easily covered its growth-related capital spending (which totaled $825 million during the first half of the year), allowing the company to pay off additional debt. 

More distribution growth ahead

Energy Transfer plans to evaluate future distribution increases each quarter. The MLP will likely continue boosting its payout, given its ultimate goal of returning the distribution to its prior level of $0.305 per unit each quarter ($1.22 per unit annualized).

It slashed its distribution by 50% during the market downturn of 2020 to retain cash to help reduce debt. With its balance sheet back on solid ground, the company is now only 15.1% away from reaching its distribution target. 

The MLP certainly produces the cash needed to achieve that goal. But it has other potential uses for its excess cash, including debt reduction, additional growth opportunities, and unit repurchases.

Energy Transfer currently expects to invest $1.8 billion to $2.1 billion in organic growth projects this year. And it's evaluating several opportunities in the coming years. For example, it's making progress on a plan to convert its Lake Charles facility into a liquefied natural gas (LNG) export terminal. It has already secured several sales contracts, which gives it confidence it can make a positive final investment decision this year. It's hoping to secure funding partners to help offset some of the cost of building this large-scale facility.

The midstream company is also evaluating opportunities to expand into the petrochemicals space. It could build a petrochemical facility and make acquisitions to build out a platform in the sector. It's also considering bringing on financial partners to help support this strategy.

The company is pursuing other investments to expand its existing assets to gather, process, transport, store, and export more oil, natural gas, and associated petroleum products. And it's looking at lower-carbon opportunities such as carbon capture and storage. These would increase Energy Transfer's cash flow, potentially allowing it to boost its distribution well past its former peak in the future.

This monster yield should get even bigger

Energy Transfer continues to make progress on returning its payout to its former peak. It's within striking distance after giving investors another sizable raise. Meanwhile, as its expansion-related investments come on line in the coming years, it could eventually eclipse that level. That makes it a great option for investors seeking a big-time passive income stream with upside potential.