Why Power Transmission Is My Best Passive Income Investment | The Motley Fool

I have many investments that make passive income. Right now I earn a lot of money from it Power Transfer (ET -0.22%). It’s because of my growing position and master limited partnership’s (MLP) offering high yield and ever-rising dividends.

I am very comfortable with my foreign investments in high yield MLP. Here’s why.

Building a great place makes money

I have it’s interesting history and Energy Transfer. I started adding the middle giant to my portfolio in early 2020, right before the plague struck. It turned out to be a scary time for the other side, because MLP kept cutting its distribution in half to save money.

However, Energy Transfer used some of its savings to establish its capital base. It paid off the debt, which continued to lower its bottom line increasing the ratio. That the idea has really paid dividends to investors. Today, Energy Transfer has a strong investment-grade radio paper has a leverage ratio in the lower half of the 4.0-to-4.5x range.

The development rate increase provided Energy Transfer with increased financial flexibility. It used this flexibility to rebuild its payroll (its current payroll is higher than pre-pandemic) and consolidate the middle class. Energy Transfer has closed several acquisitions in the past few years, including buying Crestwood Equity Partners in a $7 billion deal.

Crestwood was my partner big holdings. As a result, it enabled me to combine the two higher income positions in one strong investment. I have also added to my Energy Transfer position several times over the past few years, increasing my income from the position.

The elite income investment

Energy Transfer checks all the boxes for me. The giant medium produces a lot of steady cash flow. Approximately 90% of adjusted earnings are before interest, taxes, depreciation, and amortization (EBITDA) comes from stable, pay-based sources. The MLP also has a very balanced asset mix. It is a combination of stability and diversification help reduce risk.

Meanwhile, the distribution company maintains a portion of the stable cash flow for investors. It currently generates approximately $8.5 billion in distributed revenue year after year, while generating $4.5 billion in dividends. The low 53% payment rate makes it save almost 4 billion dollars of money every year there are other plans, such as growth projects, increased loan repayments, and unit repurchases. With capital expenditure growth expected to be $3 billion this year (and $2 billion-$3 billion a year over the long term), Energy Transfer has enough financial flexibility before entering its strong bar.

Energy Transfer’s capital investments will help grow its distributed cash flow. Additionally, the company has made several acquisitions over the past year further increase its growth. In addition to acquiring Crestwood, the company bought Lotus Midstream last year for $1.5 billion and recently bought WTG Midstream for $3.1 billion. With a strong balance sheet, Energy Transfer has a lot of money that turns into additional acquisition opportunities when opportunities arise.

The MLP’s growing cash flow supports the ever-rising distribution. Energy Transfer aims to increase its payout by 3% to 5% per year by raising its dividend per share ($0.0025 per unit, or $0.01 per year). That’s a healthy growth rate for a company that already gives animal yield (about 8%).

It is also very possible. The estimated increase from the WTG Energy deal alone ($0.04 per unit in 2025, rising to $0.07 per unit in 2027) will support increased distribution for several years.

A high paying, tangible investment

I still have my investment in Energy Transfer he started brilliantlyit has grown to become my main income generator over the years. The company should generate more revenue for me in the future, given its plan to increase its payout every quarter. With a strong financial base and stable cash flow, this it seems money is very tangible. That’s why I plan to continue holding a big position in Energy Transfer, and will likely continue to increase in the future.