Energy Transfer LP (NYSE: ET) is one of the largest and most diversified midstream energy companies in North America. With ownership of vast pipeline networks spanning over 114,000 miles across 41 states, Energy Transfer stands out as a leader in the midstream sector.
For income-oriented investors, Energy Transfer offers an extremely attractive distribution yield of 9.06%. This ranks as one of the highest yields among Master Limited Partnerships (MLPs).
About Energy Transfer
Headquartered in Dallas, Texas, Energy Transfer owns and operates a strategically located portfolio of energy assets. This includes natural gas, crude oil, natural gas liquids (NGL) and refined products pipelines, as well as various storage facilities.
Specifically, Energy Transfer’s assets include:
- Natural gas pipelines – over 90,000 miles of natural gas pipelines, making it one of the largest natural gas pipeline networks in the country.
- NGL pipelines – over 5,650 miles of NGL pipelines. Energy Transfer transports, stores and fractionates NGLs.
- Crude oil pipelines – approximately 11,315 miles of crude oil trunk and gathering pipelines.
- Refined products pipelines – around 3,670 miles of refined products pipelines that transport gasoline, diesel and jet fuel.
- Storage – 115 million barrels of NGL, crude oil and refined products storage capacity.
- Export terminals – LNG export terminal and crude export terminals providing energy exports.
This expansive footprint provides Energy Transfer with stable fee-based revenues, as volumes flow through its pipelines and facilities. About 85% of total revenues are fee-based, providing insulation from commodity price volatility.
Diversification and Scale
Energy Transfer’s asset diversity and massive scale provide it with a robust and resilient business model. The company has operations spanning all major U.S. production basins, including Permian, Eagle Ford, Haynesville, Marcellus and Utica.
This diversification mitigates risk, as weakness in one region can be offset by strength in others. Additionally, Energy Transfer’s dominance as one of the largest midstream providers gives it significant competitive advantages.
In December 2021, Energy Transfer further boosted its scale and scope with the $7 billion acquisition of Enable Midstream. This deal expanded Energy Transfer’s natural gas footprint and strengthened its presence in the Anadarko and Ark-La-Tex basins.
Strong Distribution Coverage and Balance Sheet
Energy Transfer now expects its full-year 2023 Adjusted EBITDA to range between $13.5 billion and $13.6 billion, including the consolidated operations of Crestwood in November and December 2023.
This provides around 1.9x distribution coverage, meaning cash flows sufficiently cover the current distribution payments with room to spare. This coverage ratio gives Energy Transfer flexibility and supports continued distribution growth.
Energy Transfer also maintains a strong investment-grade balance sheet. At the end of Q3 2023, its credit rating was BBB- and its debt-to-EBITDA ratio was a healthy 3.7x. The partnership has effectively managed leverage in recent years while expanding its asset base.
9%+ Distribution Yield
Energy Transfer’s common units currently yield 9.06% on an annualized basis. This distribution has grown significantly since the partnership’s inception in 2002.
ET has increased its distribution for 25 consecutive quarters, underscoring its commitment to delivering steady cash returns to unitholders.
In the past year, Energy Transfer has paid out $1.305 per common unit in distributions. Based on the current $14.46 unit price, this equates to a 9.06% forward yield. By comparison, the S&P 500 Index yields just 1.7%.
For income investors, Energy Transfer’s high yield is hard to beat. The distribution appears secure, with a below-average payout ratio compared to other MLPs. The cash flows from its diversified energy infrastructure assets should continue enabling distribution growth.
With its vast pipeline networks and significant scale, Energy Transfer is well-positioned in the midstream space. The partnership offers income investors a uniquely high 9%+ yield that seems sustainable given strong distribution coverage and a healthy balance sheet.
Energy Transfer’s further expansion into natural gas with the Enable acquisition also makes it an attractive pick. Demand growth for U.S. natural gas exports supports additional upside going forward.
Overall, Energy Transfer checks all the boxes for a top-tier MLP investment – diversification, financial health, visible growth and a mouthwatering distribution. Income investors seeking energy infrastructure exposure would do well to consider units of ET.