Here's Why I Still Wouldn't Touch Energy Transfer LP -- Even With That 6.9% Yield
On paper, Energy Transfer LP (NYSE: ET) looks solid. In 2025, the company generated roughly $8.2 billion in distributable cash flow and a coverage ratio of around 1.77x. That's more than adequate.
Leverage is also manageable, with net debt of around $60 billion and a debt-to- EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of around 4.6x. Those are reasonable numbers for a midstream operation.
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But here's the rub: This is still a capital-heavy business, and Energy Transfer is not a steady-state cash machine. It's a capital-intensive infrastructure company that requires continuous investment to maintain and grow its asset base. Here's why that matters for investors and why I don't think it looks attractive.
A track record matters
Annual capital expenditures actually remain quite elevated, with growth capex coming in at around $5 billion to $5.5 billion per year, which doesn't include maintenance capex, which clocked in at around $1.1 billion in 2025.
This means a significant portion of cash flow is recycled back into the business. So when capital markets tighten or project economics shift, that model becomes more fragile.
Energy Transfer has already shown how quickly things can change.
In 2020, the company cut its distribution by 50%, reducing it from $1.22 to $0.61. This was the result of high leverage, aggressive expansion, and pressure from declining energy demand during the COVID-19 pandemic.
Of course, the distribution was restored, but this was an inconvenient reminder that this is not a "set it and forget it" income investment. It should also be noted that the nearly 7% yield isn't without a catch.
You see, yield is actually a function of price and perceived risk. When a company like Energy Transfer trades at a higher yield than many of its peers, it's because investors are discounting something in the business.
In this case, it could be an execution risk.
Energy Transfer continues to run a large slate of multibillion-dollar growth projects with long timelines. Delays, cost overruns, or weaker-than-expected volumes don't show up immediately in headline numbers, but they can affect returns over time.
There's also capital intensity.
Even with roughly $8 billion-plus in annual distributable cash flow, the business still requires $2 billion to $3 billion in annual growth capex, plus maintenance spending. That means a meaningful portion of cash flow is reinvested just to sustain and expand the system.
In other words, this isn't a fixed asset base throwing off excess cash. It's an ongoing capital cycle.
Now compare that to regulated utilities or higher-quality infrastructure operators yielding 3% to 5%. Those businesses typically have more predictable cash flows, lower reinvestment volatility, and a consistent history of maintaining or steadily increasing dividends.
Because the cash flows are more stable and the payout history is more reliable, investors accept a lower yield.
So essentially with Energy Transfer, you're being paid to accept variability in cash flow, higher reinvestment needs, and a history that shows the payout can change under pressure.
That's the trade-off. And for income investors looking for durability, that trade-off is hard to justify.
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Jeff Siegel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
Here's Why I Still Wouldn't Touch Energy Transfer LP -- Even With That 6.9% Yield was originally published by The Motley Fool
