Energy Transfer Overview
Energy Transfer is a prominent midstream company in North America. It primarily generates revenue through commissions, which significantly support its distribution.
The history of Master Limited Partnerships (MLPs) has seen some troubling events that might push investors to consider other high-yielding midstream options.
Energy Transfer, trading on the New York Stock Exchange as ET, offers a compelling dividend yield of 7.9%. To put that in perspective, the S&P 500 has a yield of only 1.1%, with energy stocks averaging around 3.3%. But before rushing to invest, there are a few important points to consider.
The company’s main focus lies in the transportation of oil and natural gas. Its portfolio of pipeline transportation, processing, and storage is crucial for the energy sector’s functionality. Essentially, Energy Transfer connects the upstream (energy production) to the downstream (chemicals and refining) markets.
What’s interesting is that, unlike upstream and downstream segments, Energy Transfer isn’t directly tied to commodity prices. This MLP primarily earns fees based on the usage of its energy infrastructure. Therefore, the volume of energy moving through its systems is more critical than the price of oil or natural gas. This connection is vital for the global economy, which helps maintain a relatively steady production, even during downturns in oil prices.
In the third quarter of 2025, the distribution from Energy Transfer appeared robust. The MLP’s distributable cash flow was 1.65 times the amount needed to cover distributions. The company also asserts that its current financial position is the strongest it has been in its history, with a debt-to-EBITDA ratio between 4x and 4.5x.
Management has indicated a reasonable distribution growth rate of 3% to 5% while keeping current leverage levels steady. This potential growth is expected to be fueled by capital investments totaling $5 billion earmarked for 2026, along with additional projects on the horizon.
Now, while Energy Transfer can seem like an attractive investment, it’s essential to keep some caveats in mind. Back in 2020, the MLP slashed its distribution by 50%. This decision seemed aimed at improving the company’s balance sheet.
The distribution cut happened during an oil downturn associated with the COVID-19 pandemic—an uncertain time. Investors who depended on that income for living expenses likely felt disappointed by the cuts. Some may have even sold their MLPs and thus missed out on the later recovery in distributions.
Though the risk of further cuts seems minimal now, cautious dividend investors might want to think carefully before putting their money into Energy Transfer. The cuts from 2020 raised significant concerns at the time.
Another event worth noting happened during the energy slump in 2016 when Energy Transfer was looking to acquire Williams Companies. Originally, the company intended to avoid this deal by issuing convertible debt to protect buyers from prospective dividend cuts, which management hinted might be necessary. This raised eyebrows among investors as it appeared insiders were protecting themselves at the shareholders’ expense.
This backdrop naturally leads to a lack of trust among risk-averse investors. Importantly, Energy Transfer isn’t the only option for high-yield midstream investments. For example, Enterprise Products Partners, yielding 6.8%, has an investment-grade credit rating and has consistently increased its distribution for 27 years—roughly the same duration for which Energy Transfer has been publicly traded.
One might argue that events from 2020 and 2016 are long past for Wall Street. Energy Transfer does appear to be in a more secure financial position now. But then again, trust is a hard thing to quantify. The potential for another energy downturn could keep conservative investors awake at night. As it stands, Energy Transfer might be more suited for those willing to actively manage their investments. More cautious investors might find greater reliability with alternatives like Enterprise Products Partners.
Before purchasing shares in Energy Transfer, here are some aspects to ponder:
The Motley Fool’s analyst team has identified other stocks that they think have greater potential for returns than Energy Transfer. These alternatives could be worth considering for those looking to maximize gains over the coming years.
While it’s great to reflect on historical performance, investors should also focus on current trends and company stability. Ultimately, relying on insights from trusted financial advice can guide smarter investment decisions.
