Energy transfer (NYSE:ET) has become a premium passive income producer during the last years. The Master Limited Partnership (MLP) pays a significantly higher than average cash distribution currently yielding 7.9%, compared to the Master Limited Partnership (MLP) dividend yield of 1.4%. S&P500. During that time, it steadily increased that payment each quarter.
THE MLP recently declared its latest distribution increase, pushing its payout to 3.3% above last year’s level. It should have enough fuel to continue increasing its significant gains in the future. This makes it a great option for those looking for a steadily growing passive income stream. And who understand the potential tax implications of investing in an MLP.
The Great Reset pays off big dividends
Energy transfer has not always been the most reliable source of income. The MLP cut its distribution payments in half during the pandemic to conserve additional cash to fund expansion projects and debt reduction. This strategy paid off. He was able to gradually reduce his leverage ratio, bringing it back to its target range of 4.0 to 4.5 over the past year. This allowed the company to gradually return its distribution to its pre-pandemic level, which it had reached early last year.
THE pipeline company has since set a goal of increasing its distribution at an annual rate of 3% to 5% by steadily increasing the distribution payment each quarter. It can easily support this growth. The MLP generates far more cash than it distributes to investors – $3.6 billion in excess free cash flow after paying $4 billion in distributions last year. That gives it plenty of money to fund expansion projects, to the tune of $1.6 billion in growth capital spending in 2023, while maintaining a strong balance sheet. He hopes to have leverage for be towards the bottom of its target range this year.
Energy Transfer’s growing financial flexibility allowed it to make two notable acquisitions last year. In November, it bought fellow MLP Crestwood Equity Partners for $7.1 billion and completed its purchase of Lotus Midstream for $1.5 billion in May. The company has structured these transactions so that they have a neutral impact on its leverage ratio, ensuring that its financial flexibility is maintained.
Sufficient fuel to increase value for investors
These acquisitions will shake things up for the MLP this year. It expects its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to reach a range of $14.5 billion-$14.8 billion, up about 7% at the midpoint. Energy transfer is also expected to be boosted by expansion projects and healthy market conditions. With rising profits and he has With strong financial indicators, Energy Transfer has enough capacity to increase its distribution this year.
The energy infrastructure company expects its capital spending to increase to between $2.4 billion and $2.6 billion this year, well within its annual target range of $2 billion to $3 billion. These projects will help fuel earnings growth in the coming quarters….
