The High-Yield Energy Stocks You Should Dive Into Instead of Energy Transfer

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Energy Transfer (ET) may sparkle like a chrome-plated Cadillac in the grimy garage of the energy sector, boasting a tantalizing yield of over 7.5%. Yet, hold onto your butts, folks-this beast might not be the golden ticket for those looking to transform a mere $100 into a raging river of income.

Step right up and check out its fellow road warriors in the Master Limited Partnerships (MLPs) arena: Plains All American Pipeline (PAA) and Western Midstream Partners (WES). These contenders are hitting the gas pedal with yields of 8.5% and a mind-boggling 9.5%, respectively-stealing the limelight from ET and taking you on a high-octane joyride toward passive income paradise.

A Well-Oiled, Income-Producin’ Machine

Plains All American Pipeline is the quintessential engine of the oil world, pumping out 8 million barrels of crude oil and NGLs through its labyrinthine pipelines and storage oceans every. single. day. This ain’t some dilapidated circus; it’s a finely-tuned income-generating Goliath.

How, you ask? Well, PAA gobbles up fixed fees like a ravenous wolf, claiming 85% of its earnings after slapping together a messy sale of its Canadian NGL business. The cash flow is stable, oh-so-comfortably resembling that of ET-but, our friends, only 15% of PAA’s earnings tango with commodity price fluctuations compared to a staggering 10% for its bulkier competitor. It’s serene like a lake before the storm.

As a titillating bonus, this pipelining powerhouse forecasts it’ll crank enough cash to cover its luscious distribution 1.75 times this year, comfortably lounging just above its 1.6x target. Not shabby! It tailgates Energy Transfer’s near 1.9x coverage level through the season’s first half, but that’s just the appetizer.

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Now, let’s talk about that balance sheet-a fine specimen, indeed. Plains emerged from the second quarter with a 3.3x leverage ratio, skating safely toward the low end of its 3.25x to 3.75x target. In comparison, Energy Transfer is rocking a bit of excess baggage in its near 4.0x to 4.5x range. It’s a wild ride, but the well-oiled machine of Plains is more than capable of navigating the chaos.

And wait-there’s more. Plains is no slouch when it comes to growth investments. They’re pouring cash into expanding operations, gobbling up small acquisitions like a starving beast. They just snagged another 20% interest in the BridgeTex Pipeline Company. Upward and onward!

Plains is poised to crank up its payout by a hefty 10% each year until it hits that coveted 1.6x coverage level, before hitching its wagon to steady cash flow growth. In contrast, ET is playing at a modest game, targeting a meek 3% to 5% annual bump. Yawn!

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Steady Baseline Income Growth with Upside Potential

Now, let’s swing over to Western Midstream, the unsung hero of the natural gas, crude oil, and produced water service realm. This MLP has its eye on the prize, churning out predictable cash flow and buffering its high-yielding dividend from the chaos of the marketplace through fee-based contracts.

They’re forecasting a juicy $1.3 billion to $1.5 billion in free cash flow this year. That’s not just enough to cover its lavish distribution but also leaves a tantalizing cushion for capital expenses like an overstuffed wallet. With a sub-3.0x leverage ratio, this MLP dances on the line of financial flexibility like a tightrope walker with a death wish.

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In a bold move, Western Midstream is using some of its surplus financial muscle to wrestle Aris Water Solutions through a $1.5 billion cash and stock deal, which should turbocharge its operations and send its free cash flow skyrocketing next year. Plus, they have hot growth options sizzling on the stove for 2027 with their recently green-lit North Loving II gas processing plant and Pathfinder Pipeline projects.

As Western Midstream speeds ahead, it aims to deliver low- to mid-single-digit annual growth backed by the steady churn of its business engine. Growth isn’t just a hollow promise-it’s a potent cocktail, mixed with the potential for incremental distribution bumps from major expansions and astute acquisitions.

Better Income Options

Now, let’s not fool ourselves. Energy Transfer holds its ground as a solid MLP for passive income aficionados, but the real party is being thrown by the likes of Plains All American and Western Midstream. They’re pumping out higher yields, ready to fuel your insatiable hunger for income. With potential growth rates hotter than a pepper sprout, these MLPs are screaming out to be the better investments if your mission is to wring out every last drop of income from every cent of that sacred $100 investment.

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2025-08-11 04:12