Energy Transfer (NYSE: ET), one of the largest midstream companies in the United States, operates more than 140,000 miles of pipeline across 44 states. It transports natural gas, liquefied natural gas (LNG), natural gas liquids (NGLs), crude oil, and other refined products through its pipes, and it also exports some natural gas products overseas.
Energy Transfer might not seem like an exciting investment, but it’s delivered a total return of more than 450% over the past decade, including reinvested distributions. Past performance never guarantees future gains, but I believe it’s still one of the best energy stocks you can buy for stable returns and long-term income.
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As a midstream company, Energy Transfer generates most of its profits by charging upstream and downstream companies “tolls” to use its infrastructure. Therefore, it’s less exposed to volatile oil and gas prices. It merely needs those resources to keep flowing through its pipes to generate more cash to fund its distributions.
Energy Transfer is structured as a master limited partnership (MLP), which means you technically become a partner instead of an investor. So while you’ll need to file an additional K-1 tax form every year to report that investment separately, MLPs often pass their tax losses onto their investors — which frequently offsets the tax burden from their cash distributions. MLPs also blend returns of capital with taxable income to achieve more tax-efficient distributions.
Energy Transfer’s forward yield of 6.9% might seem high, but it will remain sustainable as long as its distributable cash flow (DCF) covers its annual distributions. Here’s how easily it covered its distributions over the past five years.
|
Metric |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|---|---|---|---|---|---|---|
|
Adjusted DCF (Billions) |
$5.74 |
$8.22 |
$7.45 |
$7.58 |
$8.36 |
$8.20 |
|
Total Distributions (Billions) |
$2.47 |
$1.78 |
$3.09 |
$3.99 |
$4.39 |
$4.56 |
Data source: Energy Transfer.
From 2020 to 2025, Energy Transfer’s earnings per unit (EPU) rose from a loss of $0.24 (due to the pandemic) to a profit of $1.21. By 2028, analysts expect its EPU to rise to $1.71. At $19, it still looks like a screaming bargain at less than 13 times this year’s EPU.