Is Energy Transfer the Best Ultra-High-Yield Dividend Stock to Buy Right Now?

How many ultra-high-yield dividend stocks are there? The answer depends on how you define "ultra-high." My working definition is that an ultra-high yield is four or more times the current dividend yield of the S&P 500 (SNPINDEX: ^GSPC), which currently translates to a yield of roughly 4.4%. As best I can tell, in the ballpark of 1,800 stocks qualify as an ultra-high-yield dividend stock.

Answering that question took a little effort, but it was nothing compared to trying to determine the best ultra-high-yield dividend stock. However, several stocks immediately popped into my head when I contemplated this more difficult question.

Energy Transfer (NYSE: ET) was one of them. Is this midstream energy leader the best ultra-high-yield dividend stock to buy right now?

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In support of Energy Transfer

Probably the main reason I immediately thought of Energy Transfer as a candidate for the best ultra-high-yield dividend stock is its yield of roughly 7.9%. Hundreds of stocks offer even higher yields, but what sets Energy Transfer apart from many of them is the sustainability of its distribution.

Don't be fooled by Energy Transfer's relatively high earnings-based payout ratio of 100%. The company generates ample distributable cash flow to fund its distributions. Management expects to consistently grow the distribution by 3% to 5% each year.

Energy Transfer's business isn't just muddling along, either. The midstream operator increased its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by a compound annual growth rate of 10% between 2020 and 2024. It should be able to continue growing at a solid pace, thanks in part to surging power demand from data centers that host artificial intelligence (AI) applications.

Valuation might not be an obvious factor in choosing the best ultra-high-yield dividend stock. However, an attractive valuation should increase the likelihood that a stock will generate greater total returns over time.

Energy Transfer's forward price-to-earnings ratio (P/E) is a low 9.7. The company's trailing-12-month enterprise value-to-EBITDA is also the second lowest in its peer group.

A few knocks against it

Perhaps the most compelling argument against Energy Transfer being the best ultra-high-yield dividend stock is its distribution track record. Sure, the company has increased its distribution in recent years and should keep that growth going. However, Energy Transfer cut its distribution in 2020 as a direct result of the COVID-19 pandemic.

This underscored one significant risk for the midstream company. Although Energy Transfer's cash flow is largely insulated from volatile commodity prices, its business can be negatively affected by a sharp decline in demand for oil and gas.

Another byproduct of Energy Transfer's business is its high debt load. It's expensive to build pipelines, natural gas processing plants, and other facilities. The company's leverage ratios are in the lower half of its target range of 4x to 4.5x. However, an unexpected spike in interest rates could cause problems.

Also, Energy Transfer hasn't been a winner for investors in 2025. Its unit price is down roughly 15% year to date.

I don't think this is a major concern, especially considering that Energy Transfer has delivered a gain of around 180% over the last five years. But a less-than-stellar recent stock performance could hurt the midstream leader's claim as the best ultra-high-yield dividend stock.

The best ultra-high-yield dividend stock?

Is Energy Transfer the best ultra-high-yield dividend stock? Probably not. There are too many dings against it.

That said, I think the company is a good dividend stock for investors looking for a high yield to buy right now. The stock's attractive valuation and growth prospects are big pluses in its favor. Energy Transfer's juicy distribution should continue to rise over the next several years.

What is the best ultra-high-yield dividend stock? I don't know. What I do know, though, is that a stock doesn't have to be the best to make money for investors over the long term.

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.