What’s Next for Energy Transfer Stock and Its 8% Dividend Yield?

Since the start of 2022, Energy Transfer (NYSE: ET)has increased its distribution every quarter. However, everything has not always been smooth for the company. In fact, back in 2020, the midstream company slashed its distribution in half.

So, what’s in store for Energy Transfer’s stock and its distribution? First, let’s first look at what the company does and how it grows its distribution.

A midstream giant

Energy Transfer is an integrated midstream company that transports hydrocarbons such as natural gas, natural gas liquids (NGLs), crude oil, and refined products. The company’s operations expand the midstream spectrum from gathering and processing to fractionation, storage, and transport. The company also owns stakes in motor fuel distribution company Sunoco LP and USA Compression Partners, which provides natural gas compression services. Energy Transfer is structured as a master limited partnership (MLP), so investors will get a K-1 and have unique tax advantages (and obligations).

Approximately 90% of Energy Transfer’s 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) is projected to come from fee-based activities. Fee-based businesses are not directly impacted by commodity price changes or commodity spreads and, thus, tend to be more consistent and predictable. This is important for income-oriented energy investors, as it generally means that a midstream company’s distributions are more sustainable.

Energy Transfer’s huge integrated system also allows it to be one of the largest energy arbitrageurs in the U.S. The company can take advantage of geographic and seasonal differences to boost both its results and those of its customers. This can be done in a few ways, such as selling natural gas, which has very regional pricing, into a market with better pricing or by storing hydrocarbons to get a better price in the future. It can also upgrade NGLs to higher-value products.

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Overall, Energy Transfer is well positioned to be a steady performer throughout different commodity cycles, given that it is involved in predominantly…

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