Why I Just Loaded Up on This Ultra-High-Yield Dividend Stock

My apologies to Sir Mix-A-Lot, but I like big dividends and I cannot lie.

It's not that I depend on dividends for income right now. However, I appreciate the significant help that strong dividends provide in achieving solid total returns.

I recently bought several stocks, including one of North America's midstream energy leaders, Energy Transfer LP (NYSE: ET) . Here's why I just loaded up on this ultra-high-yield dividend stock.

1. An attractive and growing distribution

Technically, Energy Transfer doesn't offer a big dividend. As a limited partnership (LP ), it pays distributions instead of dividends. Whatever you want to call them, though, they're attractive and growing.

Energy Transfer's distribution yield (on a forward-looking basis) tops 7.9%. Its yield hasn't been below 5% since 2015.

Granted, the company slashed its distribution in 2020 because it needed to pay down debt. However, Energy Transfer's debt load isn't as problematic now. Earlier this year, Fitch and S&P (upgraded the company's senior unsecured debt rating.

Since 2020, Energy Transfer has increased its distribution significantly. It's now higher than the level before the cut. The company is targeting annual distribution growth of 3% to 5% going forward.

2. A reliable business model

I also like that Energy Transfer has a reliable business model. The company operates over 130,000 miles of pipeline spanning much of the U.S. It transports and stores natural gas, natural gas liquids (NGLs), crude oil, and other refined products.

The oil and gas industry tends to be volatile. However, roughly 90% of Energy Transfer's earnings are generated from fee-based contracts that limit the company's exposure to fluctuations in commodity prices.

3. Good growth prospects

Energy Transfer has perhaps surprisingly good growth prospects. The consensus of analysts surveyed by LSEG is that the company can increase its earnings by an annual average of around 14% over the next five years. This growth can be achieved in three primary ways:

• Acquisitions
• Expanding organically
• Increasing profitability of existing assets

The company is making good progress on all three fronts. Energy Transfer completed its acquisition of Crestwood in November 2023. It expects to close on the purchase of WTG Midstream Holdings in the third quarter of 2024. The company is growing organically in several ways, including expanding its Nederland NGL pipeline. It's also improving efficiency in its midstream assets.

4. An attractive valuation

Although the bull market's momentum has waned somewhat recently, many stocks still have premium valuations. That isn't the case with Energy Transfer. It trades at only 10 times forward earnings. Its enterprise value -to- EBITDA multipole ranks among the lowest in the industry.

5. Management with skin in the game

Last, but not least, Energy Transfer's management has plenty of skin in the game. Key executives and independent board members own roughly 10% of the company. That's more than five times the average insider ownership for industry peers.

I like that management is aligned with the interest of unitholders (as an LP, Energy Transfer has units rather than shares). This gives me increased confidence that they'll make smart decisions that increase total returns over the long run.

Keith Speights has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .