Want $500 in Annual Dividend Income? Here's How Much You'd Have to Invest in Energy Transfer Stock.
Energy Transfer (NYSE: ET) is a prodigious income producer. The master limited partnership (MLP) currently makes quarterly distribution payments to its investors of $0.3175 per unit ($1.27 annualized). That puts its yield up over 8% at the MLP's recent unit price, much higher than the S&P 500's roughly 1.3% dividend yield. Energy Transfer's higher yield enables investors to generate more income for every dollar they invest.
Here's a look at how much you need to invest in the MLP to receive $500 in cash distributions each year.
More income from your investment
At Energy Transfer's current annualized payment rate, you'd need to own 394 units of the company to receive $500 in cash distributions each year. With its unit price recently around $15.50 apiece, you'd need to invest a little over $6,100.
For perspective, a similar investment in an S&P 500 index fund would only produce about $81 of annual dividend income. You'd need to invest nearly $37,600 into an S&P 500 index fund to collect $500 of dividend income.
Another nice feature of Energy Transfer's lucrative distribution is that the MLP plans to steadily increase the payout, which has grown by 3.3% over the past year. The company aims to increase its payout by around 3% to 5% annually by giving investors a slight raise each quarter.
Several factors drive that outlook. Energy Transfer has a strong financial foundation, enabling it to invest in expansion projects and make acquisitions. Those investments should grow its cash flow, giving it more money to pay distributions.
One factor to keep in mind
While Energy Transfer offers a high-yielding income stream, MLPs have drawbacks. These entities send investors a Schedule K-1 tax form each year (often later in the tax filing season).
Schedule K-1s might complicate your taxes, so you'll need to understand their impact before investing in an MLP for income. On the other hand, MLPs also have tax benefits, which, along with their lucrative income, can make them worth the extra effort.
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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.
