Despite energy sector volatility, Energy Transfer (ET) stands out as a top high-yield opportunity. A recent 20% dip has pushed its dividend yield to almost 8%, making its strong balance sheet and predictable cash flows even more appealing for investors seeking a “buy and hold forever” stock.
For investors navigating the often-turbulent waters of the energy sector, finding a reliable income stream can feel like a daunting task. While stocks in the energy sector are known for their volatility due to dramatic swings in commodity prices, certain companies are built to withstand these frequent ups and downs. One such company that has caught the attention of income-oriented investors is Energy Transfer (NYSE: ET), a pipeline giant that, despite a recent 20% pullback from its peak, offers a compelling high yield and robust long-term growth prospects.
The midstream energy sector, which encompasses the transportation and storage of oil and natural gas, has undergone a significant transformation. Producers are now prioritizing cash flows over aggressive production growth, and pipeline companies have similarly focused on strengthening their balance sheets and growing within their financial means. This shift has created a more stable environment for midstream investments, making now an opportune time to explore high-yield options like Energy Transfer.
A Fortress Balance Sheet and Predictable Business Model
Energy Transfer boasts one of North America’s largest and most integrated midstream systems. Its vast network is crucial for transporting, processing, and storing natural gas, crude oil, refined products, and natural gas liquids (NGLs) across nearly every major U.S. producing basin and connecting to vital Gulf Coast export hubs. This expansive footprint provides a significant competitive advantage, allowing the company to efficiently capture incremental volumes and leverage geographic price spreads.
Crucially, Energy Transfer’s business model is designed for stability. Approximately 90% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to come from fee-based services. This structure largely insulates the company from the direct impact of volatile energy prices and commodity spreads, providing a predictable cash flow stream that income investors covet. Furthermore, the company has emphasized increasing its percentage of “take-or-pay” contracts, which guarantee payment regardless of whether customers utilize the services, further solidifying its revenue base.
The company has diligently worked to fortify its financial position since a challenging period in 2020. During the early days of the pandemic, Energy Transfer made the difficult but strategic decision to cut its distribution to prioritize debt reduction and fund growth through internal cash flow. This move paid off, as management has successfully lowered its leverage and rebuilt its distribution coverage, with the payout now exceeding pre-cut levels. In its latest reported quarter, the distributable cash flow covered the distribution by more than 2 times, indicating a substantial safety margin for future increases. Management has indicated plans to continue raising the distribution by 3% to 5% annually, supported by its strong fee-based cash flows and an active project pipeline, as detailed in its Q3 2025 earnings release.
Strategic Growth Initiatives Driving Future Returns
Beyond its stable core business, Energy Transfer is actively investing in its next phase of growth. The company has significantly increased its capital expenditures, with plans to spend approximately $5 billion this year, much of which is earmarked for natural gas-related projects. These investments are strategically aligned with surging demand trends and are expected to generate attractive returns.
Key growth initiatives include:
- Hugh Brinson Pipeline: This critical project aims to transport 1.5 billion cubic feet per day of natural gas from the Permian Basin into Texas. This capacity is vital for meeting the soaring power demands from new data centers and industrial customers in the region. A planned second phase will further expand capacity and enhance Energy Transfer’s flexibility in regional natural gas movement.
- Desert Southwest Pipeline: Valued at $5.3 billion, this ambitious project will extend Energy Transfer’s reach from the Permian into Arizona and New Mexico, with an expected completion by the end of 2029.
- Lake Charles LNG Project: The company is progressing with its long-planned liquefied natural gas (LNG) export project in Lake Charles, Louisiana. Through partnerships with entities like MidOcean Energy and various long-term offtake agreements, this project is poised to become a substantial cash flow driver, capitalizing on robust global LNG demand, particularly from Asian markets. This focus on LNG is a direct response to global energy shifts, as highlighted by Reuters’ analysis of U.S. natural gas and LNG export growth.
- Data Center and AI Opportunities: Energy Transfer has already secured deals to supply natural gas to planned data centers in Texas and is actively exploring further opportunities related to the rapidly expanding artificial intelligence (AI) sector, which requires significant and reliable energy inputs.
These projects provide years of visible growth, reinforcing Energy Transfer’s position as a premier operator in the U.S. natural gas market and diversifying its revenue streams for the long term.
An Attractive Valuation for Long-Term Holders
Despite these compelling positives, Energy Transfer’s stock remains attractively valued, especially after its recent dip. It trades at approximately 9 times forward enterprise value-to-EBITDA, which is notably below its historical average. For context, midstream master limited partnerships (MLPs) typically traded closer to 13 to 14 times EBITDA between 2011 and 2016. This suggests that investors today can acquire a financially stronger company at a significantly lower multiple than a decade ago.
Compared to peers in the midstream sector, Energy Transfer offers a unique blend of high yield and growth. While more conservatively operated companies like Enterprise Products Partners (EPD) boast an even longer streak of dividend increases (26 consecutive years, even through downturns), Energy Transfer’s current yield is higher, and its renewed focus on substantial growth projects could offer greater capital appreciation potential alongside its strong income. For investors seeking a high-yield stock with visible growth potential and a resilient business model, Energy Transfer presents a compelling “buy and hold forever” opportunity.
