The energy sector is a good place to look for reliable income because many of the larger companies have strong cash flow and are shareholder-friendly. Pipeline company Energy Transfer (ET +0.59%) is no exception, consistently boasting one of the more attractive dividends on the market.
As of market close on July 30, Energy Transfer's dividend yield was 6.72%, and even more impressive, it has raised its quarterly dividend (referred to as cash distributions) for the 19th consecutive quarter. It now sits at $0.34 per share quarterly, or $1.36 annually. With a bustling pipeline (no pun intended), the momentum could be picking up steam.
Image source: The Motley Fool.
Energy Transfer has plenty of projects in its pipeline
Energy Transfer has around 140,000 miles of energy infrastructure pipeline that transports everything from crude oil to natural gas to natural gas liquids and other refined products. It has a straightforward but lucrative business model: Set up pipelines and infrastructure across the country and charge fees to other energy companies. It's the tollbooth that keeps on giving.
Most of Energy Transfer's contracts are long-term, helping to lock in future revenue and keep cash flow steady. And right now, it has a growing backlog, highlighting a surge in demand. Here are a few notable ones:
- Multiple long-term agreements to supply natural gas to three of Oracle's U.S. data centers.
- 20-year agreement with Entergy Louisiana.
- 10-year agreement with Fermi America.
- A roughly 520-mile pipeline supplying natural gas to the southwest U.S. region.
Energy Transfer has plenty of growth projects to be excited about, and with AI infrastructure build-outs (such as data centers) requiring significant amounts of energy, it's well-positioned to capitalize. The Oracle deal is an example of this.
With a foundation in place and lucrative deals underway, there's no reason to doubt that Energy Transfer's dividend is stable and that the company will meet its goal of increasing it by 3% to 5% annually.
NYSE: ET
Key Data Points
One extra step is required at tax time
Energy Transfer isn't structured like a typical corporation. It's a master limited partnership (MLP), so it doesn't pay normal corporate taxes. Instead, it passes nearly all of its profits and losses on to its investors, in exchange for favorable tax rates on the remainder. So, instead of investors receiving a standard 1099-DIV form, as with other stocks, Energy Transfer will send you a Schedule K-1 form that shows details about your share(s).
Managing that form will require an extra step when you file your taxes, but many investors find that it's not enough of a hassle to warrant missing out on Energy Transfer's attractive dividend.
