Energy Transfer Just Raised Its Dividend for the 19th Straight Quarter. Time to Buy the 6.8% Yield?

Energy Transfer (NYSE: ET) has become a very reliable income investment over the past few years. The master limited partnership (MLP), which sends a Schedule K-1 Federal tax form each year, just notched its 19th consecutive quarterly dividend increase. That pay bump pushes its current yield up to 6.8%.

Here's a look at whether now's the time to buy the high-yielding MLP for income.

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Built back better

Energy Transfer recently declared its latest cash distribution. The MLP is raising its quarterly payment to $0.34 per unit ($1.36 annualized), a more than 3% increase compared to the year-ago period. It will pay this distribution on Aug. 19 to unitholders of record as of the close of business on Aug. 7.

That's the 19th quarterly increase in a row. The pipeline company began raising its distribution in late 2021, following a 50% cut in early 2020 to retain additional cash and strengthen its financial position. That strategy has worked to perfection as Energy Transfer is now in the best financial shape in its history. That has allowed it to steadily rebuild its distribution, which is now well above the prior peak of $1.22 per unit.

Plenty of fuel to continue growing

Energy Transfer currently plans to grow its distribution by 3% to 5% per year. That's a very achievable level for the MLP. It currently generates significant excess free cash after paying distributions ($2.7 billion in distributable cash flow in the first quarter, compared to less than $1.2 billion in total distributions paid). That's enabling it to retain substantial excess free cash flow to fund its growth capital program.

The MLP currently expects to invest between $5.5 billion and $5.9 billion into growth capital projects this year. That's part of a multi-year, multi-billion-dollar expansion backlog, with projects expected to enter commercial service through 2030, including $9.5 billion of major gas pipeline projects. It also has many smaller-scale gas pipeline projects underway, as well as crude oil and natural gas liquids (NGL) projects. Meanwhile, it has several additional projects under development to support growing gas power demand, NGL exports, and U.S. oil production. These projects should drive meaningful earnings and cash flow growth as they enter commercial service. The MLP currently expects to grow its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 15% at the midpoint of its guidance range this year. This growth should support its distribution growth plan.

Time to buy the high-yielding MLP?

Energy Transfer's strong growth has fueled a more than 20% increase in its unit price this year. Despite that, it trades at the lowest valuation among its MLP peers at 8.5 times forward earnings (compared to the 9.5x-11.5x range). Given its strong growth prospects and financial profile, Energy Transfer looks like a great buy right now. It should continue delivering a growing income stream along with solid price appreciation as its earnings grow, which should fuel high-octane total returns in the coming years.

Matt DiLallo has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.