Is Energy Transfer the best dividend stock for you?

Energy Transfer (NYSE: ET)s dividend yield is very high. This master limited partnership (MLP) currently pays out more than 8%. this makes its dividend yield higher than that of the average dividend yield Several times higher ( Standard & Poor's 500index (The dividend yield is approximately 1.4%). In addition, Koon Tao expects its annual dividend payout ratio to increase by 3% to 5%.

However. MLP's High dividend payouts are not for everyone. Here's how to determine if it's the most The name of yourDividend-paying stock The

Reasons to Buy Energy Transfer

Energy Transfer's main attraction is its generous cash distributions. The MLP currently pays investors $0.315 per unit per quarter ($1.26 per year), which yields about 8.21 TP3T. In other words, every $1,000 invested in the MLP generates about $82 in passive income per year.

This compares to about $14 in dividend income for an S&P 500 fund. In addition, MLP distributions are largely tax-deferred, which means investors can preserve more of the income they generate each year by validating them. This income stream should rise steadily, and Energy Transfer expects to increase its annual dividend payout by 3% to 5%. Several factors contribute to this view.

First, the company (used form a nominal expression)Dividend payout ratioRelatively conservative （It has sufficient room to raise its distribution by validating it (slightly higher than 50%). Second, the company invests a significant portion of its cash flow inventory (about $40% of total annual cash flow) in organic expansion projects that generate high returns. This year, it will invest $2.4 billion to $2.6 billion in growth projects, which will increase its cash flow.

Finally, the MLP has a strong balance sheet that enables it to make value-added acquisitions. For example, last year the company acquired fellow MLP Crestwood Equity Partners for $7.1 billion and Lotus Midstream for $1.5 billion, deals that, along with future transactions, will lead to additional revenue growth.

In total, Energy Transfer will provide investors with a generous and steadily growing distribution. This high-yield distribution will account for The Massachusetts Circular(used form a nominal expression)most members However, it should have sufficient momentum to achieve a two-digit annualized total return. However, since earnings are likely to grow at a lower single-digit rate, it should have sufficient momentum to achieve a two-digit annualized return of total mass.

Reasons for opposing the purchase of an energy transfer company

Energy Transfer is a good choice for many investors looking for income. However, it may not be for everyone. One factor that may make you think it's not for you is that it's an MLP, and while these entities can provide a lucrative, tax-deferred passive income stream, they can complicate investors' taxes. Instead of sending investors a 1099 form at tax time, they send them a K-1 form (usually later in the season). These forms can cause delays in filing and complicate tax returns (which may require the services of an accountant).

Another reason why an energy transfer company may not be suitable for owners is that you typically cannot own units of the company in a retirement account such as a Roth IRA or Traditional IRA. These entities already provide tax-deferred income. Additionally, some MLPs can trigger a liability for unrelated business taxable income (UTTI).

Finally, some investors may favor growth over Energy Transfer. The MLP operates the regulated Koon Road and other midstream assets secured by long-term carpet. These structures provide the company with a very stable cash flow to pay dividends. However, this also limits its upside potential.

In addition, the oil and gas industry is not growing as fast as other industries such as renewable energy. As a result, Energy Transfer's earnings growth and aggregate return potential are relatively modest.

It's a good income option for some people.

If you don't mind the complexity of the tax side of the equation and the lower earnings growth profile of MLPs, then Energy Transfer can be a great dividend stock. For many investors, the lucrative tax-deferred revenue stream more than makes up for it. However, it's not the best dividend stock for those looking for tax simplification or greater earnings growth potential.

Should you invest $1,000 in Energy Transfer now?

Before buying Energy Transfer stock, consider the following:

Motley Fool Stock AdvisorA team of analysts have just selected what they believe to be the most popular analysts in the world at the moment.-est (superlative suffix)The name of the person is suitable for the investor to purchase10Energy Transfer is not one of the 10 stocks listed on ....... The 10 stocks that made the list could generate huge returns in the coming years.

Stock AdvisorProvides investors with an easy-to-learn blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Since 2002, StockAdvisorThe service has more than doubled the return on the S&P 500 Index.

View 10 stocks only

*Stock Advisory Rates as of April 15, 2024

Matt DiLallo has a position in Energy Transfer. the Motley Fool does not own any of the aforementioned stocks. the Motley Fool has a disclosure policy.

Is Energy Transfer the Best Dividend Stock for You? This post was originally published by The Motley Fool