Want $1,000 in Annual Passive Income? Invest $14,730 in This Ultra-High-Yield Dividend Stock
Key Points
Energy Transfer offers high distribution yield of roughly 6.8%.
The midstream leader expects to grow its distribution by 3% to 5% annually.
Energy Transfer is largely insulated from several macroeconomic factors that could impact other stocks.
- 10 stocks we like better than Energy Transfer ›
Reliable, high-yield income is especially appealing to many investors when the stock market is highly volatile. And with the ongoing Iran war, the potential for resurging inflation, and uncertainty related to the November mid-term elections, volatility isn't likely to go away anytime soon.
The good news is that several stocks offer a port in the storm plus attractive distributions. One especially stands out right now. Do you want $1,000 in annual passive income? Invest around $14,730 in Energy Transfer (NYSE: ET).
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A durable, high-yield distribution
Energy Transfer's forward distribution yield currently stands at roughly 6.8%. This yield is much higher than the S&P 500's (SNPINDEX: ^GSPC) yield of slightly over 1%. But do you have to give up safety to obtain the income Energy Transfer offers? Not as much as you might think.
Yes, Energy Transfer has cut its distribution in the past. However, the midstream energy leader now boasts the strongest financial position in its history. It continues to generate more than enough cash flow to cover the distribution payout.
Management expects the company to grow its distribution by 3% to 5% annually. Executives also plan to maintain a stable leverage ratio, which should reassure investors concerned about the potential for rising debt to impact Energy Transfer's ability to fund its distributions.
Energy Transfer benefits from the conflict with Iran. Disruption in the Middle East makes oil and gas produced in the U.S. more attractive to countries around the world. Energy Transfer's more than 144,000 miles of pipeline transports much of these fuels.
What if the tensions between the U.S. and Iran are peacefully resolved, leading to a drop in oil prices? Energy Transfer shouldn't be affected very much. Around 90% of its estimated 2026 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are fee-based. Commodity price fluctuations won't matter.
The outcome of the mid-term elections shouldn't impact Energy Transfer much, either. The company has an impressive backlog of capital projects that should drive growth in the coming years, regardless of which political party controls Washington, D.C.
Realistic, reliable income
The math is straightforward with Energy Transfer. An investment of $14,730 in this pipeline stock should easily generate at least $1,000 in passive income over the next 12 months.
One thing to note, though, is that Energy Transfer is structured as a master limited partnership (MLP). Investing in MLPs comes with some tax complexities. However, if you're willing to jump through a few extra tax hoops, buying this stock as part of a diversified portfolio could be a great solution for income investors.
Should you buy stock in Energy Transfer right now?
Before you buy stock in Energy Transfer, consider this:
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Keith Speights has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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