Forget Energy Transfer? The Smartest High-Yield Energy Stocks to Buy With $100 Right Now.

Published in Stocks and Investing on Sunday, August 10th 2025 at 21:57 GMT by The Motley Fool
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These MLPs offer even higher yields and faster distribution growth potential.

Forget Energy Transfer: The Smartest High-Yield Energy Stock to Buy Now

In the world of income-focused investing, high-yield energy stocks have long been a staple for those seeking reliable dividends amid the volatility of the oil and gas sector. Energy Transfer (ET), a major player in the midstream space, often grabs headlines with its eye-catching yield hovering around 8-9%. It's a giant in pipelines, storage, and transportation, boasting a vast network that moves natural gas, crude oil, and refined products across North America. However, beneath that alluring yield lies a host of concerns that make it a less-than-ideal choice for long-term investors. Instead, savvy investors should turn their attention to a more dependable alternative: Enterprise Products Partners (EPD), which stands out as the smartest high-yield energy stock to buy right now. With a proven track record of stability, consistent payouts, and strategic growth, EPD offers a compelling case for those looking to build wealth without unnecessary risks.

Let's start by dissecting why Energy Transfer might not be the best bet, despite its popularity. ET has built an impressive empire through aggressive acquisitions, including high-profile deals like the purchase of Enable Midstream and Crestwood Equity Partners. This expansion has certainly boosted its scale, allowing it to handle massive volumes of energy commodities and generate substantial cash flows. In recent quarters, ET has reported distributable cash flow (DCF) covering its distributions by a comfortable margin, often around 1.5-1.7 times. The company has also been proactive in reducing debt, with its leverage ratio improving to below 4.5 times EBITDA, a level that's more manageable than in years past. Moreover, ET's management has committed to modest distribution growth, targeting 3-5% annual increases, which could appeal to yield chasers.

But here's where the cracks appear. Energy Transfer's history is marred by inconsistency. During the 2020 oil price crash triggered by the pandemic, ET slashed its distribution by 50%, a move that eroded investor trust and highlighted its vulnerability to market downturns. While it has since restored and grown the payout, the memory lingers, raising questions about its resilience in future crises. Additionally, ET's structure as a master limited partnership (MLP) comes with tax complexities, including the issuance of K-1 forms that can complicate tax filing for individual investors. Governance issues have also surfaced, with critics pointing to the influence of co-founder Kelcy Warren and occasional legal battles, such as disputes over pipeline projects like Dakota Access. From a valuation standpoint, ET trades at a forward EV/EBITDA multiple of around 8-9 times, which seems reasonable but doesn't fully account for the risks tied to its commodity exposure and regulatory hurdles in an era of increasing environmental scrutiny.

Contrast this with Enterprise Products Partners, which embodies the qualities of a "smart" high-yield investment. EPD, another MLP giant, operates a similarly extensive midstream infrastructure, including over 50,000 miles of pipelines, storage terminals, and fractionation facilities. What sets it apart is its unblemished record of distribution reliability. For 25 consecutive years, EPD has increased its quarterly distribution without a single cut—not even during the 2008 financial crisis, the 2014-2016 oil bust, or the 2020 pandemic. This streak underscores a conservative management approach focused on sustainable growth rather than flashy expansions. Currently yielding about 7-8%, EPD's payout is backed by a robust DCF coverage ratio of 1.6-1.8 times, providing a buffer against economic headwinds.

Financially, EPD shines with a fortress-like balance sheet. Its leverage ratio sits at a prudent 3-3.5 times EBITDA, well below industry averages, thanks to disciplined capital allocation and a focus on fee-based contracts. Over 90% of EPD's revenues come from long-term, take-or-pay agreements, which minimize exposure to volatile commodity prices. This stability has allowed the company to invest in high-return projects, such as expanding its natural gas liquids (NGL) export capabilities at the Houston Ship Channel and developing new fractionation plants in the Permian Basin. These initiatives are poised to drive organic growth, with EPD projecting 5-7% annual DCF growth through 2026, fueled by rising demand for U.S. energy exports amid global supply disruptions.

Beyond the numbers, EPD's strategic positioning in key basins like the Permian, Eagle Ford, and Haynesville gives it a competitive edge. The company has capitalized on the shale boom, enhancing its integrated system to process and transport NGLs, propane, and ethane efficiently. Recent moves, such as the acquisition of Navitas Midstream and investments in carbon capture technology, demonstrate forward-thinking adaptation to the energy transition. While the shift toward renewables poses long-term challenges for the sector, EPD's emphasis on natural gas and NGLs—cleaner alternatives to coal and oil—positions it well for a lower-carbon future. Analysts often praise EPD for its "best-in-class" risk management, with credit ratings in the investment-grade territory (BBB+ from S&P), further reducing borrowing costs and enhancing financial flexibility.

For investors, the choice boils down to risk versus reward. Energy Transfer's higher yield might tempt those seeking immediate income, but its past volatility and operational complexities could lead to sleepless nights. EPD, on the other hand, offers a smoother ride with comparable yields and superior growth prospects. At a current enterprise value of around $100 billion, EPD trades at a forward EV/EBITDA of 9-10 times, a slight premium to ET, but one justified by its quality. Income investors can buy units with confidence, knowing that EPD's distributions are not just high but also durable, supported by a business model that's weathered multiple storms.

In summary, while Energy Transfer has its merits as a turnaround story, it's not the smartest pick in a crowded field. Enterprise Products Partners represents the gold standard for high-yield energy investing: reliable, resilient, and ready for the future. By opting for EPD, investors can secure generous yields without the baggage that plagues alternatives like ET. Whether you're building a dividend portfolio for retirement or seeking stability in uncertain times, EPD deserves a spot as a core holding. As the energy landscape evolves, this MLP's steadfast approach will likely continue rewarding patient shareholders for years to come. (Word count: 928)

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