Energy Transfer's Yield Just Climbed Near 6.5%. Here's Why I'm Not Worried About the Payout.
Key Points
Energy Transfer pays a higher yield than many other pipeline operators.
But its distributable cash flow easily covers its distributions.
- 10 stocks we like better than Energy Transfer ›
Energy Transfer (NYSE: ET), one of the largest midstream pipeline companies in the United States, pays a forward yield of 6.5%. That yield might seem high, but it's supported by plenty of cash and long-term catalysts. Let's see why it's still a reliable income play for patient investors.
Why is Energy Transfer a reliable stock?
Energy Transfer operates more than 140,000 miles of pipeline across 44 states. It transports natural gas, liquefied natural gas (LNG), natural gas liquids (NGLs), crude oil, and other refined products, and helps companies export some of their natural gas products.
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As a pipeline operator, Energy Transfer generates most of its revenue by charging upstream producers and downstream refineries "tolls" to use its infrastructure. That business model is insulated from volatile commodity prices because it only needs those resources to keep flowing through its pipes. However, the soaring demand for oil and natural gas continued to boost crude oil and NGL volumes to record levels in the first half of 2026. It also secured more long-term agreements with utilities and data centers to supply natural gas for the booming cloud infrastructure and artificial intelligence (AI) markets.
How stable are its distributions?
Energy Transfer is a Master Limited Partnership (MLP), which technically treats you as a partner rather than a regular shareholder. It blends a return of capital with its own cash to pay more tax-efficient distributions instead of traditional dividends. Still, you'll need to report that income separately on a K-1 form every year when you file your taxes.
Energy Transfer, like other MLPs, covers its distributions with its distributable cash flow (DCF). Its DCF has easily covered its total distributions over the past few years, even as the pandemic, inflation, soaring interest rates, and geopolitical conflicts rattled the commodities market.
|
Metric (Billions USD) |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|---|---|---|---|---|---|---|
|
Adjusted Annualized DCF |
$5.74 |
$8.22 |
$7.45 |
$7.58 |
$8.36 |
$8.21 |
|
Total Distributions |
$2.47 |
$1.78 |
$3.09 |
$3.99 |
$4.39 |
$4.56 |
Data source: Energy Transfer.
Energy Transfer has raised its payout for 19 consecutive quarters, and it plans to raise its distribution at an annual rate of 3% to 5% as long as its coverage ratio (its adjusted DCF to distributions) -- which came in at 1.8x in 2025 -- stays around that level. That's why it's a reliable income stock, even if it pays a higher yield than many other pipeline companies.
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Leo Sun 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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