The leading midstream energy company is growing at a brisk pace and pays a lucrative (and growing) distribution.
Insiders have been buying units of Energy Transfer (ET -0.99%) hand over fist lately. Co-founder and Executive Chairman Kelcy Warren recently bought another 3 million units of the midstream giant, while co-CEO Thomas Long purchased an additional 20,000.
Warren now holds nearly 301.5 million units, while Long’s position is now almost 1.1 million, according to data from Capital IQ. Warren is the top unitholder of the master limited partnership (MLP) with 8.8% of its outstanding units. Insiders own more than 10% of the outstanding units, the highest percentage by far among the country’s largest pipeline companies.
High insider ownership aligns management’s interests with those of outside shareholders. Meanwhile, such buying tends to signal that insiders are bullish about a company’s prospects.
Energy Transfer’s insiders have reason to be optimistic. The MLP’s growth rate has accelerated sharply, fueled by recently completed organic expansion projects, strong market conditions, and accretive acquisitions. Its operations set several volume records in the second quarter, which helped power a 32% surge in its distributable cash flow.
The midstream giant is in a strong position to continue growing value for investors in the future. It recently closed another acquisition, buying WTG Midstream for nearly $3.1 billion. The company expects that deal alone to add $0.07 per unit to its distributable cash flow by 2027. That’s enough to support its distribution growth (3% to 5% annually or roughly $0.01 per unit) for several years.
Energy Transfer pays a cash distribution to investors that currently yields nearly 8%, several times above the S&P 500’s less than 1.5% yield.
That growing income stream alone makes the MLP an appealing investment for those comfortable with receiving the Schedule K-1 federal tax form such entities send investors for tax purposes each year. Add in its growth, and Energy Transfer is a compelling investment opportunity these days, which is why it’s no surprise to see insiders buying.
Matt DiLallo has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
