Energy Transfer's Units Surged Nearly 12% in January

The S&P 500 got off to a decent start during the first month of the year, with the index gaining 1.4%. And the energy sector had a particularly strong performance, increasing 14.4% during the month -- and adding about 40 basis points to the S&P 500's appreciation.

Of course, certain stocks in the sector performed better than others. Here's how midstream company Energy Transfer's (NYSE: ET) units performed in January and a look at the master limited partnership's underlying business to assess its prospects.

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The month's performance

During January, Energy Transfer's units appreciated 11.9%. That may seem disappointing given the energy sector's 14.4% performance, but the company has some positive things going for it. As a midstream energy company, Energy Transfer's revenue isn't as reliant on natural gas and crude oil prices as upstream companies are. Those companies explore and produce the commodities, making them very sensitive to prices.

But Energy Transfer operates pipelines that transport gas and oil, along with storing those products. That means it relies on the flow of these commodities more than the underlying price. It also has contracts and receives fees to process and store oil and gas, providing another measure of stability.

Factoring in distributions

Energy Transfer's unit price appreciation isn't the only factor investors should consider. The company has raised its distributions every quarter for the last several years. That includes boosting December's payout from $0.3325 to $0.335 per unit.

Over the past year, through Feb. 12, the units lost 4.7%. However, after factoring in dividends, they produced a total return of 0.3%. At the current distribution rate, Energy Transfer yields 7.3%. That dwarfs the S&P 500's 1.2% yield.

Of course, Energy Transfer isn't completely immune to major events, like the COVID-19 pandemic. In 2020, it halved the quarterly distribution rate. But those were extraordinary times.

Presently, the company has plenty of cash flow to pay its distributions. During the first nine months of 2025, it produced $8.2 billion in adjusted distributable cash flow compared to the $4.6 billion in distributions to unit holders. Adjusted distributable cash flow is a key measure of a master limited partnership's ability to pay distributions.

Given its cash flow and yield, income-focused investors looking for a relatively stable company in the energy sector should find Energy Transfer attractive. Combined with potential price appreciation, owning the units could produce a nice total return.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.