Here's Why I Still Wouldn't Touch Energy Transfer LP -- Even With That 6.9% Yield

On paper, Energy Transfer LP (NYSE: ET) looks solid. In 2025, the institution generated astir $8.2 cardinal successful distributable currency travel and a sum ratio of astir 1.77x. That's much than adequate.

Leverage is besides manageable, with nett indebtedness of astir $60 cardinal and a debt-to-EBITDA (earnings earlier interest, taxes, depreciation, and amortization) ratio of astir 4.6x. Those are tenable numbers for a midstream operation.

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But here's the rub: This is inactive a capital-heavy business, and Energy Transfer is not a steady-state currency machine. It's a capital-intensive infrastructure institution that requires continuous concern to support and turn its plus base. Here's wherefore that matters for investors and wherefore I don't deliberation it looks attractive.

A way grounds matters

Annual superior expenditures really stay rather elevated, with maturation capex coming successful astatine astir $5 cardinal to $5.5 cardinal per year, which doesn't see attraction capex, which clocked successful astatine astir $1.1 cardinal successful 2025.

This means a important information of currency travel is recycled backmost into the business. So erstwhile superior markets tighten oregon task economics shift, that exemplary becomes much fragile.

Energy Transfer has already shown however rapidly things tin change.

In 2020, the institution chopped its organisation by 50%, reducing it from $1.22 to $0.61. This was the effect of precocious leverage, assertive expansion, and unit from declining vigor request during the COVID-19 pandemic.

Of course, the organisation was restored, but this was an inconvenient reminder that this is not a "set it and hide it" income investment. It should besides beryllium noted that the astir 7% output isn't without a catch.

You see, output is really a relation of terms and perceived risk. When a institution similar Energy Transfer trades astatine a higher output than galore of its peers, it's due to the fact that investors are discounting thing successful the business.

In this case, it could beryllium an execution risk.

Energy Transfer continues to tally a ample slate of multibillion-dollar maturation projects with agelong timelines. Delays, outgo overruns, oregon weaker-than-expected volumes don't amusement up instantly successful header numbers, but they tin impact returns implicit time.

There's besides superior intensity.

Even with astir $8 billion-plus successful yearly distributable currency flow, the concern inactive requires $2 cardinal to $3 cardinal successful yearly maturation capex, positive attraction spending. That means a meaningful information of currency travel is reinvested conscionable to prolong and grow the system.