Energy Transfer: A Yield and a Worry

My aunt Carol, a woman who considers clipping coupons a competitive sport, recently cornered me at Thanksgiving. “Passive income,” she declared, brandishing a cranberry-stained napkin. “That’s the ticket. You young people need to get on that train.” She’d been reading about Energy Transfer (ET +0.00%), apparently. A 7.3% yield, she explained, with the breathless enthusiasm usually reserved for lottery tickets. It sounded…substantial. And honestly, after years of explaining to relatives what I actually do for work, the idea of something simple, something with a number attached, was appealing. So, I started looking into it. And, as often happens when you start digging, things got a little…complicated.

Energy Transfer, it turns out, is in the business of moving oil and natural gas. A pipeline company, basically. A toll taker on the energy highway. It’s a reliable business, in theory. People will always need heat, or gasoline for their road trips to see distant relatives who will then grill them about their life choices. The volume of stuff flowing through their system is more important than the price of the stuff itself. Which is reassuring. It means they’re not entirely at the mercy of whatever geopolitical drama is unfolding on CNN. They’ve got $5 billion earmarked for future growth, which sounds…ambitious. My neighbor, Barry, is spending that much renovating his garage. He insists it’s an “investment,” but I suspect it’s mostly just a place to avoid his wife.

The distributable cash flow coverage is apparently a very strong 1.8x. Numbers. I’m starting to feel like my aunt Carol. But here’s the wrinkle, the thing that keeps me from immediately advising her to remortgage the house. In 2020, during the pandemic, Energy Transfer slashed its distribution by 50%. Fifty percent! That’s like telling Barry his garage renovation is on hold indefinitely. They said it was to strengthen the balance sheet, which is a perfectly reasonable thing to do. But if you were relying on that income, if you were, say, a retired schoolteacher meticulously budgeting for cat food and crossword puzzles, it would have been…unpleasant. They’ve since recovered, the distribution is higher than it was before the cut. But it leaves a lingering taste, like a slightly stale cranberry sauce.

There are other options, of course. Enterprise Products Partners and Enbridge, for example. They have decades of dividend growth, which sounds…stable. Boring, maybe, but stable. They might not offer the same juicy yield as Energy Transfer, but you might actually sleep through an energy crisis. It’s a trade-off. I’m starting to think my aunt Carol is less interested in passive income and more interested in a little bit of excitement. A little bit of risk. She always did have a fondness for long shots. And honestly, after a lifetime of sensible decisions, maybe she deserves one.

2026-02-10 17:52

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