Matt DiLallo, The Motley Fool
5 min read
In This Article:
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Fee-based arrangements support 90% of Energy Transfer's earnings.
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Kinder Morgan gets about 95% of its earnings from stable sources.
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Williams receives roughly 91% of its earnings from predictable contracts.
Cash flows across the energy sector tend to be more variable due to commodity price volatility. However, some energy stocks just print money because their business models have minimal direct exposure to commodity prices. That gives them the cash to pay lucrative dividends.
Energy Transfer (NYSE: ET), Kinder Morgan (NYSE: KMI), and Williams (NYSE: WMB) operate money-printing energy midstream assets. Because of that, they're ideal options for investors seeking to generate passive income.
Energy Transfer operates a nationwide footprint of crucial midstream assets. Its more than 130,000-mile pipeline network moves oil, natural gas, and other commodities from production basins to market centers in the U.S. and beyond through its export terminals. Fee-based contracts and government-regulated rate structures support 90% of its earnings. Because of that, the master limited partnership (MLP) prints cash.
The midstream giant generated more than $2.3 billion in distributable cash flow during the first quarter and distributed about $1.1 billion of that money to investors. Energy Transfer used its retained cash flow to invest in expansion projects ($945 million of growth capital spending) and maintain its strong balance sheet.
The MLP is investing heavily to expand its already massive midstream footprint. It's spending $5 billion on growth projects this year, which are expected to come online through the end of next year. That should drive a meaningful uptick in its stable cash flows in 2026 and 2027. Energy Transfer's growing sources of stable cash flow should enable the MLP to continue increasing its distribution. It's aiming to raise its more than 7%-yielding payout by 3% to 5% per year.
Kinder Morgan owns an irreplaceable energy infrastructure portfolio. It operates one of the largest natural gas pipeline networks in the country and is a leader in handling refined petroleum products and transporting carbon dioxide.
Take-or-pay contracts, which entitled Kinder Morgan to payment regardless of volumes or prices, back 64% of the company's cash flow. Meanwhile, hedging contracts that guarantee prices lock in another 5% of its cash flow. Kinder Morgan also gets 26% of its earnings from fee-based sources, most of which have minimal exposure to volume fluctuations. As a result, the company's assets pump out a lot of stable cash flow each quarter.
