Energy Transfer (ET 0.41%) is a popular investment, and a big factor is its monster yield. The master limited partnership's (MLP) distribution currently yields more than 6.5%. That's several times higher than the S&P 500's dividend yield of 1.2%.
The energy midstream-giant's high-yielding dividend has helped pump up its total return over the last five years. Here's a look at how much money you would have today if you had invested $1,000 in the MLP five years ago.
Units of Energy Transfer traded at around $13.67 apiece five years ago. Today, the MLP's unit price is about $19.60. That's a roughly 45% gain, or 7.7% annualized.
At that rate, the MLP would have grown a $1,000 investment made five years ago into $1,448. For comparison, the S&P 500 has gained 84.6% during the same period (13% annualized), growing a $1,000 investment in an S&P 500 index fund to $1,846.
However, that return doesn't factor in the lucrative distributions paid by the MLP. While Energy Transfer cut its distribution by 50% during the pandemic to retain additional cash for debt reduction, it has since rebuilt the payment. Its distribution is now higher than its pre-pandemic level.
If we add in the distribution income (and assume dividend reinvestment), Energy Transfer's total return increases to 129.6% (or 18.1% annualized). That's higher than the S&P 500's total return when adding in the dividend income generated by its holdings (98.8%, or 14.7% annualized).
To put a dollar amount to that return, if you invested $1,000 into Energy Transfer five years ago and reinvested your distributions, you'd now have $2,296. For comparison, investing $1,000 into an S&P 500 Index fund that reinvested dividends would have grown to $1,988.
As those numbers show, Energy Transfer's distribution significantly impacts its returns. The MLP currently plans to grow that payout by around 3% to 5% annually, which could give it the fuel to continue producing market-beating returns in the future.
