Energy Transfer (ET +0.05%) has become a very reliable income stock over the past few years. The master limited partnership (MLP) has been giving its investors a slight pay bump each quarter. That has helped push its distribution yield above 7%, driving it even further above the S&P 500's level of 1.1%.
The MLP recently announced its latest distribution increase. With a strong financial profile and plenty of growth in the pipeline, Energy Transfer should have ample fuel to continue increasing its high-yielding payout. That makes it an ideal passive income investment for those comfortable receiving the Schedule K-1 Federal Tax form that the MLP sends its investors each year.
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A high-quality, high-yielding payout
Energy Transfer recently declared its latest cash distribution. It's raising its quarterly payment to $0.335 per unit ($1.34 annualized). That's a slight increase from last quarter's level and more than 3% higher than the year-ago payment. This growth rate aligns with the pipeline company's target to increase its distribution by 3% to 5% per year.
The MLP can easily afford its higher payment level. Energy Transfer paid out an average of slightly more than 50% of its annual cash flows over the last three years. That enabled it to retain billions of dollars each year to fund expansion projects and maintain its balance sheet flexibility. The company's leverage ratio is currently within its 4.0-4.5 times target range, giving it ample financial flexibility to fund its expansion initiatives while continuing to increase its distribution level. Energy Transfer's comfortable payout and leverage levels have it in the strongest financial position in its history.
NYSE: ET
Key Data Points
More growth ahead
Energy Transfer is using its financial flexibility to expand its operations, notably its natural gas network. The MLP expects to invest $5 billion to $5.5 billion in growth capital projects this year, up from $4.6 billion last year. Notable projects include the $2.7 billion Hugh Brinson Pipeline (with in-service dates in the fourth quarter 2026 and the first quarter 2027) and the $5.6 billion Transwestern Pipeline Expansion Project (with a fourth-quarter 2029 in-service date). These and other projects provide the MLP with highly visible cash flow growth for the next several years.
The MLP has several other potential expansion projects under development. For example, it plans to approve the Dakota Access North Project by mid-year. It's also working on several more potential projects to supply gas to new data centers and power generation facilities. Securing these projects would further enhance the MLP's growth profile.
An excellent passive income investment
Energy Transfer continues to raise its already high-yielding distribution. That trend should continue in the coming years. The MLP's bankable, growing distribution makes it an ideal investment for those seeking to generate passive income.
