What's fascinating this is Energy Transfer (ET 0. 64%) and Western Mid Partners (WES 1. Conversely, 32%) are among the largest master limited partnerships (MLPs).
However, Moreover, These mid companies generate stable cash flow, much of which they pay out to investors. Energy Transfer's distribution yields 7. 5%, and Western Mid's is over 9%.
Most investors will ly prefer to own only one of these MLPs, especially due to the potential tax complications associated with the annual Schedule K-1 federal tax forms they send to investors (which is quite significant).
Here's a look at which MLP is the better buy for those seeking sustainable, growing dividend income. Furthermore, Image source: Getty Images.
Drilling down into their operations Energy Transfer and Western Mid operate diversified energy mid networks. Western Mid serves the Delaware, DJ, and Powder River basins.
Furthermore, It primarily gathers, treats, cesses, and transports natural gas, NGLs, and crude oil, as well as vides water disposal services.
Furthermore, It generates fee-based income secured by long-term contracts.
Energy Transfer offers broader diversification, as it serves a range of commodities, including natural gas, NGLs, crude oil, and refined ducts, in today's financial world.
Its integrated wellhead-to-water system features over 130,000 miles of pipelines linking gathering and cessing assets, storage facilities, and export terminals. 90% of its earnings are fee-based.
Energy Transfer's larger, more diversified infrastructure model reduces risk and increases its growth potential (quite telling). Conversely, There are other notable differences between these MLPs.
Oil giant Occidental Petroleum is one of Western Mid's largest customers and holds a 44. 8% direct interest in the MLP, as well as a 2% stake in its operating company.
Energy Transfer, on the other hand, doesn't have a single significant customer or a large controlling holder.
At the same time, Instead, the company controls two other MLPs (Sunoco and USA Compression), which supply it with additional income and enhance its growth file.
Comparing their financial positions A high dividend yield can sometimes signal financial distress, but that's not the case with these MLPs.
Energy Transfer is in the best financial position in its history, given the current landscape. In contrast, Its leverage ratio is now in the lower half of its target range of 4.
Nevertheless, Additionally, the MLP generates enough cash to cover its payout by more than two times, viding it with the flexibility to invest in growth jects and make acquisitions.
Western Mid also maintains a strong financial position, backed by a leverage ratio currently below 3 (noteworthy indeed).
While Western Mid has a higher payout ratio, it expects to generate sufficient free cash flow this year to cover its capital expenditures with some room to spare, considering recent developments.
As a result, it also has ample financial flexibility to make bolt-on acquisitions and apve additional organic expansion jects.
On the other hand, Furthermore, A look at their growth files Energy Transfer plans to invest $5 billion in growth capital jects this year, including a major new natural gas pipeline, several additional gas cessing plants, and increased export capacity, in today's financial world.
Those jects should fuel accelerated earnings growth in the 2026-2027 time frame.
Meanwhile, the company has several more expansion jects under development, including its Lake Charles LNG export terminal.
Furthermore, Energy Transfer also has the financial capacity to continue its industry consolidation strategy (it typically makes one multibillion-dollar acquisition per year to enhance its capabilities and drive growth).
Conversely, These growth investments support Energy Transfer's outlook for 5% earnings growth this year, which should accelerate in 2026 (which is quite significant).
That backs its plans to increase its high-yielding distribution by 3% to 5% annually, given current economic conditions.
Meanwhile, Western Mid expects its 2025 capital spending to be between $625 million and $775 million, with 65% allocated to growth initiatives, considering recent developments.
Market analysis shows aims to use its financial flexibility for additional organic expansions and accretive bolt-on acquisitions as opportunities arise.
These growth investments should drive mid-single-digit cash flow and distribution growth.
High-quality, high-yielding investments Western Mid and Energy Transfer offer high-yielding distributions, backed by stable cash flows and strong financial files.
As a result, either would be a solid option for those seeking to generate passive income. However, Energy Transfer's greater diversification reduces risk and vides it with more growth potential.
In contrast, Those features make it a better choice for investors seeking a sustainable, growing income.
The Author Matt DiLallo is a contributing Motley Fool Stock Market Analyst specializing in covering publicly traded companies that pay dividends, especially those in the energy and REIT sectors.
He also covers pre-IPO companies, ETFs, and other topics.
Prior to The Motley Fool, Matt was Director of Operations for a non-fit group in Pittsburgh and Manager for a religious organization in New York. He holds an MBA and a B.
In Biblical Studies from Liberty University. TMFmd19 X @MatthewDiLallo Matt DiLallo has positions in Energy Transfer. The Motley Fool recommends Occidental Petroleum.
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