Why Energy Transfer is my top investment for passive income | The Motley Fool

I own a number of investments that generate passive income. Currently, I earn the most income from energy transfer (ET -0.49%). This is due to my growing position and the high yield and steadily increasing distributions of my Master Limited Partnership (MLP).

Very happy with my large investment in high yield stocks MLP. Here’s why:

Build your highest profit-generating position

i had interesting History of energy transfer. I first added midstream giants to my portfolio at the beginning of 2020. right Before the pandemic. On the other hand, this turned out to be terrible timing, as MLPs began cutting their distributions in half to preserve cash.

However, Energy Transfer used the additional cash it held to strengthen its financial position. I paid off my debt and steadily reduced my profits. leverage ratio. The strategy is Really We paid dividends to our investors. Currently, Energy Transfer has: strong Investment grade balance sheet with a leverage ratio in the lower half of the target range of 4.0x to 4.5x.

The improved leverage ratio increases Energy Transfer’s financial flexibility. The company used that flexibility to restructure payments (current payments are above pre-pandemic levels) and consolidate its midstream division. Energy Transfer has made several acquisitions over the past few years, including acquiring Crestwood Equity Partners in a $7.1 billion deal last year.

Crestwood was one of my big Collection. Thanks to that I was able to integrate the two highest income Combine locations into one stronger investment. I have also added several energy transfer positions over the past few years. Earn more from your position.

Investing for elite income

Energy Transfer ticks all the boxes. The midstream giant generates a lot of steady cash flow. Approximately 90% of adjusted profit excluding interest, taxes, depreciation and amortization (EBITDA) from stable paid sources. MLPs also have a balanced asset mix. The combination is Stability and diversification help reduce risk.

Meanwhile, the company distributes a modest percentage of its stable cash flow to investors. We currently generate distributable cash flow of approximately $8.5 billion. Every year, While earning approximately $4.5 billion in distributions. A low payout ratio of 53% allows us to maintain approximately $4 billion of cash Annually for other initiatives, including growth capital projects, further debt repayments, and unit buybacks. With capital spending growth expected to be approximately $3.1 billion this year ($2 billion to $3 billion annually over the long term), Energy Transfer has sufficient financial flexibility before leveraging its strong balance sheet. It is equipped with

Energy Transfer’s capital expenditures will help increase its distributable cash flow. Additionally, the company has made several follow-on acquisitions over the past year. To further increase the growth rate. In addition to the Crestwood acquisition, the company acquired Lotus Midstream last year for $1.5 billion and recently acquired WTG Midstream for $3.1 billion. Energy Transfer has a strong balance sheet and sufficient financial flexibility to make additional acquisitions as opportunities arise.

MLP cash flow growth supports steady increases in distributions. Energy Transfer aims to increase its dividend by 3% to 5% annually by increasing distribution payments ($0.0025 per unit, or $0.01 annually) each quarter. This is a healthy growth rate for the company What we already offer Monster yield (nearly 8%).

It is also highly achievable. The estimated increases from the WTG Energy contract alone ($0.04 per unit in 2025, increasing to $0.07 per unit in 2027) will support several years of dividend growth.

A very lucrative and bankable income source

Investing in Energy Transfer It got off to a rocky start.It has grown to be my biggest passive income producer over the years. The company should provide me with even more income in the future, given its plan to steadily increase its dividend every quarter. and strong Financial foundation and stable cash flow, this is looks like It is a very bankable source of income. Therefore, we would like to continue holding this event in the future. big We have established a position in the energy transfer field and have the potential to further increase our position in the future. future.