Energy Transfer vs. Enterprise Products Partners: Which Midstream MLP Offers the Better Dividend?

Key Points

For investors seeking reliable income and consistent distribution growth, the energy midstream sector presents compelling opportunities. Two of the most prominent master limited partnerships (MLPs) in this space are Energy Transfer (NYSE: ET) and Enterprise Products Partners (NYSE: EPD).

Both companies operate extensive midstream infrastructure across the United States, handling natural gas, oil, and natural gas liquids (NGLs). While both offer attractive yields and have a history of increasing their payouts, determining which is the superior investment largely depends on an investor’s risk tolerance and growth expectations.

Energy Transfer: The Growth and Dividend Combo

Energy Transfer operates one of the most extensive and diversified midstream networks in North America, managing approximately 140,000 miles of energy infrastructure across key basins and major market hubs. The company is currently pursuing an aggressive growth strategy, capitalizing on strong demand for natural gas transportation. It maintains a highly strategic footprint in the Permian Basin, the country’s most productive oil field, where new infrastructure—such as the recently launched Hugh Brinson Pipeline—is easing pipeline constraints. This pipeline routes natural gas from the Permian to high-demand markets throughout Texas, supporting the expanding AI data center sector, while another project reverses flow to serve Arizona and New Mexico.

For the current year, Energy Transfer plans to allocate up to $5.9 billion in growth capital expenditures, focusing on projects backed by long-term contracts that are projected to yield mid-teen returns. With over 90% of its adjusted EBITDA derived from stable, fee-based sources and solid distribution coverage, the company is well-positioned to grow its payout by 3% to 5% annually.

Image source: The Motley Fool.

Enterprise: The Steady Eddie

In contrast, Enterprise Products Partners is known for its conservative and resilient financial management. The company maintains a low leverage ratio of 3 times and a robust coverage ratio of 1.9 times, enabling it to grow its distribution for 28 consecutive years through various energy cycles and economic crises. During periods of market volatility, such as the post-pandemic recovery, Enterprise demonstrated flexibility by scaling back growth capex to $1.8 billion in 2021 and $1.6 billion in 2022. It now plans to invest up to $4 billion this year on high-value projects, with double-digit adjusted EBITDA and distributable cash flow growth projected for 2027.

Enterprise’s financial strength is anchored by its high credit rating in the midstream sector and a low weighted average cost of debt of 4.7%. The partnership is currently raising its distribution at a 3% annual rate, with potential to accelerate this growth next year as distributable cash flow expands.

The Verdict

Choosing between Energy Transfer and Enterprise Products Partners ultimately depends on individual investment objectives. For income-focused investors seeking a conservative, ultra-reliable “sleep-well-at-night” holding, Enterprise is the superior choice due to its proven track record and defensive balance sheet. Conversely, for those seeking higher potential upside, Energy Transfer offers a more compelling value proposition. It trades at a cheaper valuation (forward enterprise value-to-EBITDA of 8.3 compared to Enterprise’s 10.7), provides a higher yield (approximately 6.5% versus 5.8%), and has a robust pipeline of growth projects. Ultimately, owning both can provide an ideal blend of stability and growth.

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