Over the past year, I’ve been a big proponent of Economics 101 when it comes to evaluating companies – an identifiable product or business model, solid balance sheets, strong revenues, and high profit margins. It’s a good foundation, but for income investors, there’s another important concern: the consistency of payouts and the availability of funds for those payouts.
Specifically, the number that really matters is distributable cash flow (DCF) because it ultimately funds the distribution payouts in the long-term.
With that in mind, I have a great pick for you this week. It’s a master limited partnership, or MLP, which I’ve talked about before. They’re a favorite asset category of mine in general – they typically have business models that experience stable cash flow, and they are required by the partnership agreement to distribute a set amount of cash to investors.
One of my favorites right now is a company that’s trading at around just $13 as of this writing, but is one of the largest and most diversified midstream energy companies in North America. It’ll be a high-demand business for the foreseeable future, and they’re getting ready to distribute one of the market’s richest payouts right now.
The 8.31% yield is just icing on the cake. Here’s what you need to know.
Why ET Is the Best MLP to Buy Right Now
Right now, one of my favorite MLP’s is Energy Transfer LP (ET), the Dallas, Texas-based diversified midstream energy company.
In total, the company operates 120,000 miles of pipelines and associated energy infrastructure across 41 states. With that capability, the company can move approximately 30% of the US’ total output in crude oil and natural gas products.
That’s significant, and it shows up in the company’s financials.
Over the last 12 months, revenue, and net income available to shareholders came in at $88.03 billion and $4.09 billion.
Those are big numbers, but for income investors the number that really matters is distributable cash flow (DCF) because it ultimately funds the distribution payouts in the long-term. In the most recent quarter (Q3/2022) DCF came in at $1.6 billion, which represented a 23% increase over the same period a year ago.
That’s great, and it allowed the company to increase its quarterly cash distribution to $0.265 per Energy Transfer common unit ($1.06 on an annualized basis), which is up 21.84% from last year’s annual payout of $0.87. Looking forward, the company’s ultimate goal is to get distributions to $0.305 per quarter or $1.22 on an annualized basis.
At the current price, the $1.06 annual payout amounts to a very healthy 8.31% yield, making ET one of my favorite inflation-beating investments, hands down!
— Shah Gilani
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Source: Total Wealth