Everyone Loves This 6.5% Pipeline Yield. Here's the Risk I Think They're Ignoring.

Energy Transfer (ET) is currently offering a 6.5% yield, which may seem appealing at first glance. However, investors should consider the potential risks associated with this higher yield before making a decision. Enterprise Products Partners (EPD) provides a more reliable alternative with a 5.8% yield, backed by a strong history of consistent growth and a solid financial foundation.

EPD has increased its distributions for 28 consecutive years, maintains an investment-grade credit rating, and has a distributable cash flow coverage ratio of 1.7x in 2025. This means that EPD's yield is more likely to be sustained over the long term without the risk of a cut. Energy Transfer's higher yield may be tempting, but it comes with added complexity and a history of distribution cuts that have caused unease among investors.

The 2020 distribution cut, initiated during the COVID-19 pandemic, was meant to allow the company to reset its operations by reducing leverage. While this move proved successful, it was met with disappointment from income-focused investors who valued consistency. Additionally, Energy Transfer's attempt to acquire pipeline peer Williams (WMB) in 2016 was ultimately unsuccessful, leaving investors with lingering trust issues.

Despite Energy Transfer's attractive yield, many investors would prefer a reliable, dependable investment that requires minimal monitoring. In this case, Enterprise Products Partners offers a more dependable option with a lower but stable yield, backed by strong financials and a proven track record of reliable returns. Ultimately, the choice between Energy Transfer's 6.5% yield and Enterprise Products Partners' 5.8% yield comes down to individual risk tolerance and investment priorities.

For those seeking a boring yet reliable income stream, Enterprise Products Partners may be the wiser choice.