If you’re in the market for stocks that can offer good passive income and potential for growth, midstream stocks are definitely worth looking into. The Master Limited Partnership (MLP) sector has its own nuances. While MLPs involve more paperwork during tax season, a large portion of their income is treated as a return of capital, which is tax-deferred. This means you won’t owe taxes on that income until you sell.
Right now, the midstream industry seems to be in its strongest financial position ever, yet the stock prices are averaging around 13.7 times corporate value. Many MLPs have moved away from the Incentive Distribution Rights (IDR) models that once harmed shareholders, creating a better outlook for growth, especially since demand for natural gas is on the rise, driven in part by the growth in artificial intelligence and liquefied natural gas exports.
Given the current valuations and future prospects, investors could begin by making larger investments—say around $10,000—to start generating substantial passive income.
Energy Transfer (New York Stock Exchange: ET) boasts one of the largest integrated midstream systems in the U.S. and is currently expanding, capitalizing on various prospects. They have a solid foothold in the Permian Basin, which is one of the nation’s most economical sources of natural gas, and they see growing project demands tied to the development of AI data centers.
Currently, Energy Transfer is managing two significant pipeline projects aimed at delivering natural gas from the Permian to areas where it’s in high demand. They are also establishing multiple connections with data centers and energy companies. For this year, they’re allocating $4.6 billion for growth-related capital expenditures, jumping to $5 billion in 2026, with expectations for a return of about 10% on that investment.
Financially, the company appears stable. They are keeping their leverage at the lower end of their target range, with a record percentage of take-or-pay contracts, meaning they get paid even if the service isn’t utilized. Their distribution coverage ratio stands at 1.7 times based on last quarter’s distributable cash flow, and they expect their distributions to rise by 3% to 5% annually moving forward.
Despite these strong financial indicators and growth opportunities, the stock has a forward EV/EBITDA ratio of merely 7.6 times, based on an expected $17.1 billion in adjusted EBITDA by 2026. That looks like quite the bargain.
When yield approaches double digits, it can be concerning, but that’s not the case for Western Midstream Partners (NYSE: WES). Their distributions are well-supported by free cash flow, and they possess one of the more robust balance sheets in the midstream sector, ending the last quarter with leverage at just 2.8 times. They even set a record for EBITDA last quarter and have increased their full-year outlook.
The company has been focusing on water infrastructure, having just completed the acquisition of Alice Water Solutions, which provides significant water purification services in the resource-rich Delaware Basin. Additionally, they’re working on the Pathfinder pipeline to handle produced water from the North Loving natural gas facility. There’s also a second train expansion at North Loving in the works. These projects are anticipated to become operational in the first half of 2027, offering substantial growth potential.
Even with high yields, Western is aiming for distribution growth in the mid-single digits. Plus, its stock is trading at a favorable forward EV/EBITDA multiple of 8.1 times, based on analyst estimates of $2.79 billion in EBITDA for 2026.
Before diving into Energy Transfer stock, keep a few things in mind:
Our analyst team from Motley Fool Stock Advisor has put together a list of what they think are the Best 10 stocks to invest in right now… and Energy Transfer isn’t featured among them. These selected stocks have the potential for good returns in the next few years.
If you think about it, some names, like Netflix, highlight the long-term success of this endeavor. If you’d invested $1,000 back when they made those recommendations in December 2004, you’d now have about $588,530!* Then there’s Nvidia, which made headlines with returns bringing a $1,000 investment made in April 2005 up to around $1,102,885!*
However, it’s crucial to recognize that the average return of the Stock Advisor is over 1,012% — notably outpacing the S&P 500’s 193%. A market-beating performance that’s hard to overlook.
See 10 stocks »
*Results as of December 1, 2025
Disclosure: The writer holds positions in Energy Transfer and Western Midstream Partners.
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