How to earn $1,000 a year from Energy Transfer stock

One of the better ways for income investors to profit from the energy sector is by snapping up shares of a pipeline company. And one of the more appealing pipeline plays is Energy Transfer (NYSE: ET), which transports crude oil and its refined products, plus natural gas.

Energy Transfer is structured as a master limited partnership (MLP). A great benefit of owning units (not shares) in an MLP is the high-yield distributions -- i.e., dividends -- they tend to pay. Sure enough, Energy Transfer's payout is generous enough to generate $1,000 in annual income with relatively few units.

Energy Transfer? More like a wealth transfer to investors

Energy Transfer currently doles out a quarterly distribution of just under $0.34 per unit. This annualizes to $1.35 -- for a lofty yield of 6.6% -- so an investor needs to hold 741 units to hit the $1,000-per-year mark. That would set you back $15,057 and a little change at the most recent closing unit price.

Why such a high yield, you might ask? That's because an MLP doesn't pay federal income taxes; rather, it's a "pass-through" entity in which, yes, that obligation is passed through to investors. This frees what can be significant amounts of cash for investor-pleasing items like distributions.

There are strict parameters for being an MLP. Such a business must derive at least 90% of its gross income from qualifying sources. In the energy sector, that means the exploration, production, or transportation of energy products.

Size matters

In terms of size, Energy Transfer is the No. 1 energy pipeline operator in the U.S., boasting around 140,000 miles over 44 states. This network is plugged into major oil and gas plays such as the massive Permian Basin in the Southwest.

That size and reach make Energy Transfer a go-to partner for energy companies that need to move product across this country.

The MLP charges fixed fees for the service, making it -- somewhat atypically for the energy sector -- not dependent on the prices of the goods being transported. As such, it can be something of a hedge for falling prices.

In periods of abundance, Energy Transfer frequently dips into the market, buying and selling some of the product it transports. So revenue and profitability can be a bit up and down -- for example, in 2022, its annual top line was almost $90 billion but fell below $79 billion the following year. Then it rose in both 2024 and 2025, landing at $85.5 billion in the latter year.

Ditto for free cash flow (FCF). Since 2022, it has ranged from $3.9 billion to almost $6.5 billion annually, and is usually more than enough to finance the distribution.

Which, by the way, typically gets a marginal (albeit very reliable) raise every single quarter. Since Energy Transfer began paying its quarterly distribution in 2006, it has risen steadily to the current level. Management has indicated that it aims to keep growth at 3% to 5% annually.

The power of the payout

It's been mission accomplished thus far, so I think it'll be able to hit that goal in the coming quarters and years. Energy Transfer always thrives and is laser-focused on delivering what income investors most want. The MLP is an excellent dividend -- sorry, distribution -- equity to own.

Eric Volkman 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.