Key Points
Enterprise Products Partners and Energy Transfer are two of the biggest MLPs.
They both offer high-yielding distributions backed by rock-solid financial profiles.
The MLPs also have lots of fuel to continue increasing their high-yielding payouts.
Energy Transfer(NYSE: ET) and Enterprise Products Partners(NYSE: EPD) are energy midstream giants. Their diversified operations support the flow of oil and gas across the U.S. These master limited partnerships (MLPs) generate lots of stable cash flow, enabling them to pay lucrative cash distributions.
Here's a look at which of these top MLPs is a better investment for income seekers this year.
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A look at their financial profiles
The first step in evaluating these MLPs (which send investors Schedule K-1 Federal tax forms each year) is to compare their financial profiles. Here's how they stack up across several key financial metrics:
MLP | Current distribution yield | Distribution Coverage Ratio | Leverage Ratio | Distribution growth rate |
|---|---|---|---|---|
Energy Transfer | 7.1% | 1.8x | 4.0-4.5x | 3%+ over the last 12 months |
Enterprise Products Partners | 6% | 1.7x | 3.3x | 2.8% over the past 12 months |
Data source: Google Finance and company financial statements.
As the table shows, Energy Transfer currently offers a higher-yielding income stream despite having a higher distribution coverage ratio. It has also increased its payment at a slightly higher rate over the past year. While the MLP has a higher leverage ratio than Enterprise Products Partners, it remains within its target range.
One reason Energy Transfer has a higher yield is due to its lower valuation. It has one of the lowest valuations in the energy midstream sector, while Enterprise Products Partners trades closer to the peer group average.
A look at the growth coming down the pipeline
Another important factor to evaluate is their growth profiles. Enterprise Products Partners is wrapping up a multi-year capital deployment cycle that began in 2022. It has completed several large-scale pipeline and marine terminal facilities in recent years, including placing $6 billion of growth capital projects into commercial service in the second half of last year. Those projects will fuel a big uptick in the company's free cash flow this year as they ramp up their volumes.
The MLP still has more growth coming down the pipeline. It expects to invest between $2.5 billion and $2.9 billion on expansion projects this year and another $2 billion to $2.5 billion in 2027. These projects will give it the fuel to continue increasing its distribution over the next few years, something it has now done for 27 consecutive years. Enterprise Products Partners also recently boosted its unit repurchase authorization to $5 billion.
Energy Transfer, on the other hand, is in the midst of a major expansion phase. The MLP expects to invest $5 billion to $5.5 billion into growth capital projects this year. Meanwhile, it has expansions lined up to enter commercial service through 2030, including two major gas pipelines ($2.7 billion Hugh Brinson Pipeline and $5.6 billion Transwestern Pipeline expansion). These expansions support its plans to increase its distribution by 3% to 5% each year.
A better buy in 2026
Energy Transfer and Enterprise Products Partners are both great income stock investments. However, Energy Transfer stands out as the better dividend investment this year. It has a higher current yield due to its lower valuation and much more visibility into its long-term growth prospects. These factors could give it the fuel to produce higher total returns in 2026 and beyond.
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Matt DiLallo has positions in Energy Transfer and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
