Energy Transfer (ET 1.01%) is a toll taker, operating one of the largest midstream businesses in North America. And it has been very rewarding for income investors of late. That comes from both the distribution yield, which is a lofty 7%, and distribution growth. Here's what you need to know before you buy it.
Energy Transfer has a good streak going
Energy Transfer's distribution was increased every quarter in 2025. Every quarter in 2024. Every quarter in 2023. And every quarter in 2022. That's the kind of reliability to which a dividend lover would happily set their calendar. Backing that growth is a business that produces enough distributable income to cover its distribution by a hefty 1.8x.
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There is plenty of room for adversity before the distribution would be at risk of a cut. In fact, the pipeline giant has billions of dollars in capital investment plans that it expects to keep the distribution growing. The goal is for modest increases of around 3% to 5% a year. Add 3% distribution growth to a 7% yield and you get 10%, which is roughly the return investors expect from stocks over the long term.
A potential fly in the ointment
If you are a forward-looking investor, Energy Transfer will likely look very attractive based on the information above. If you look back to just 2020, however, you are likely to come away with a bit less certainty. During the energy downturn that accompanied the COVID-19 pandemic, Energy Transfer cut its distribution in half.
NYSE: ET
Key Data Points
To be fair, the purpose of the cut was to free up cash so management could strengthen the balance sheet. That has occurred, and as noted, the distribution is back in growth mode. It is also above where it was prior to the cut. However, there are other midstream businesses with attractive yields and better distribution track records, such as Enterprise Products Partners (EPD 1.64%). Enterprise has 27 annual distribution increases behind it and a still-lofty 6% yield.
Energy Transfer isn't perfect
Trust is the big issue that you need to consider if you are looking at midstream master limited partnership (MLP) Energy Transfer. The timing of the 2020 distribution cut during an energy downturn is a potentially troubling coincidence. The yield is high, but the distribution track record is nowhere near as compelling as midstream peers like Enterprise. More conservative types are likely to decide that the extra yield isn't worth the extra uncertainty.
