High dividend yields don't necessarily imply high risk. I think Energy Transfer LP (ET 1.01%) is an excellent case in point.
This master limited partnership (MLP) offers a distribution yield of 7.4%. And that distribution appears to be relatively safe, making Energy Transfer an ultra-high-yield dividend stock that income investors can't – or at least shouldn't – ignore.
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A solid business
Energy Transfer's solid business makes its distribution dependable. The MLP operates more than 140,000 miles of pipeline spanning much of the U.S. Around 90% of its adjusted EBITDA comes from fees, meaning that Energy Transfer's fortunes don't hinge on commodity prices.
Roughly 40% of Energy Transfer's adjusted EBITDA is generated by operations focused on natural gas. That's a good thing, because natural gas presents tremendous growth opportunities for the company.
In particular, the booming data center market is driving higher demand for natural gas. The artificial intelligence (AI) applications hosted in these data centers require significant amounts of electricity. Natural gas is a top fuel source for powering the plants that generate this electricity.
In recent months, Energy Transfer has landed multiple data center deals. For example, the MLP signed agreements with Oracle (ORCL 2.46%) to supply natural gas to three data centers. It also inked an agreement with CloudBurst to provide natural gas to data centers in Central Texas.
Unsurprisingly, much of Energy Transfer's growth-related capital expenditures in 2026 will be in expanding its natural gas capabilities. In addition to building more pipelines, the MLP plans to double the capacity of its Bethel gas storage facility in Texas.
NYSE: ET
Key Data Points
An attractive distribution
Energy Transfer's management expects the distribution to grow by 3% to 5% per year over the long term. This planned growth, combined with the MLP's juicy yield, should make its distribution highly attractive to income investors.
Can Energy Transfer deliver on its distribution growth objectives? I think so. The company is in the strongest financial position in its history. Leverage ratios are in the lower half of management's target range of 4.0x to 4.5x.
Notably, top executives are demonstrating their conviction in Energy Transfer's prospects by putting their money where their mouths are. The MLP's insider ownership of 10% is roughly five times greater than peers. Executive Chairman Kelcy Warren has never sold a unit of Energy Transfer and has bought around 65 million units since January 2019.
The dividend world goes beyond just Dividend Kings (a group of stocks with at least 50 consecutive years of dividend increases). To obtain higher yields, income investors must expand their horizons. Energy Transfer is the kind of stock they shouldn't overlook.
