Since the beginning of this year, driven by geopolitical conflicts that have pushed up international oil and natural gas prices, the energy sector has become one of the most outstanding performers in the U.S. stock market. Energy Transfer (ET) and Enterprise Products Partners (EPD) are both midstream energy service providers. Their businesses are less directly affected by fluctuations in spot crude oil and natural gas prices than upstream exploration and production companies, offering stronger cash flow predictability. Both companies not only have current dividend yields far above the average of the S&P 500, but also have a long history of consecutive dividend payments, providing investors with a configuration choice that combines defensiveness and income.
Energy Transfer primarily engages in pipeline transportation of oil and natural gas and energy storage. Its business model is more stable than that of upstream exploration and production companies, with performance relying more on transportation volumes than on commodity price swings. Although it cannot be completely insulated from energy price effects, the company’s direct commodity price exposure is relatively limited.
In the first quarter of this year, the company achieved volume growth across all business segments, with operating revenue rising 31.1% year-over-year to $27.8 billion. The core metric monitored by management—adjusted quarterly earnings before interest, taxes, depreciation, and amortization (EBITDA)—grew 20.5% year-over-year to $4.9 billion, and this metric is regarded as an important proxy for cash flow.
In terms of stock price performance, as of June 11, Energy Transfer had risen 13.8% cumulatively for the year. Although this lagged behind the overall energy sector’s gain, its business stability is superior to that of mainstream oil and gas producers with more volatile prices. On the valuation front, the stock’s price-to-earnings ratio rose from 14 times to 16 times, still below the 21 times average P/E of the S&P 500 energy sector.
Enterprise Products Partners is also a midstream energy company, with operations covering pipeline transportation, energy processing, and storage. Affected by lower marketing revenues, the company’s first-quarter revenue fell 6.7% year-over-year to $14.4 billion, mainly due to cyclical declines in prices and trading volumes rather than fundamental weakness in its business. Notably, adjusted EBITDA still grew 10% against the trend, demonstrating the resilience of core profitability.
Management is actively advancing multiple capital projects. While making capital expenditures, the company remains steadfast in its dividend commitments. Over the past year, the company used 57% of its adjusted operating cash flow for dividend payments and share buybacks. The company has achieved annual dividend growth for many consecutive years, and most recently at the beginning of this year raised its quarterly dividend from $0.545 per share to $0.55 per share. Based on an annualized $2.20 per share, the current dividend yield is 5.9%, more than five times the average level of the S&P 500.
In the secondary market, Enterprise Products Partners’ stock price has risen 15.7% this year, also trailing the energy sector index, but the company’s sensitivity to oil prices is far lower than that of most companies within the sector. Its price-to-earnings ratio rose mildly from 12 times to 14 times, still significantly below the energy sector’s valuation midpoint of 21 times.
