We recently compiled a list of the 10 Best Stocks to Invest in for Passive Income. In this article, we are going to take a look at where Energy Transfer LP (NYSE:ET) stands against the other best stocks for passive income.
Passive income is money earned with little to no ongoing effort, unlike traditional income that requires active work. Instead of exchanging time for money, passive income allows you to generate earnings while focusing on other aspects of life. One common example is rental properties. After the initial effort of purchasing a property, preparing it for tenants, and finding reliable renters, landlords can collect rent each month without needing to be actively involved in daily management.
With the economic landscape constantly changing, many individuals are looking for ways to achieve financial stability beyond traditional full-time jobs. A 2024 Financial Wellness Survey by First National Bank of Omaha found that 53% of Americans now have at least one passive income source, highlighting a rising trend in diversifying income streams.
Vending machines gained traction as a passive income opportunity during the 2020 pandemic. Between 2019 and 2023, discussions about passive income and vending machines saw a significant rise on social media, with mentions tripling on X and increasing sixfold on Instagram, according to social media management firm Sprinklr. Google searches for passive income also jumped by approximately 75% during this period. While many Americans have found success with this investment, its long-term viability remains uncertain.
Investing in stocks, particularly dividend-paying equities, offers a clear and reliable way to generate passive income. These investments have a proven track record of delivering solid returns over time. The share of personal income derived from dividends has steadily increased, making them an important earnings source. According to S&P Dow Jones Indices, dividend income grew from 2.68% in late 1980 to 7.88% by mid-2024, while interest income declined from 14.58% to 7.61% over the same period. The report also highlighted that since 1936, dividends have accounted for more than one-third of the total returns from the broader market, with capital gains making up the remaining two-thirds.
A study by WisdomTree underscores the potential of dividend-paying stocks to generate substantial income. The report suggests that focusing on dividends can significantly boost an investor’s earnings and improve the trailing 12-month dividend yield. This approach is especially beneficial during periods of low yields and heightened market volatility, where returns may be uncertain. Investing in dividend-weighted indexes can provide a reliable income stream in such conditions.
Both seasoned and everyday investors recognize the importance of incorporating dividend stocks into their portfolios to maintain a steady flow of income. In an interview with CNBC, Brian Bollinger, president of Simply Safe Dividends, emphasized the role of dividends in generating passive income. While many retirees rely on dividends as a key income source, Bollinger pointed out that anyone can build a portfolio centered on dividend-paying stocks. He also stressed the value of developing income streams that are independent of traditional employment wages.
Our Methodology
For this list, we used a stock screener to identify dividend-paying companies with yields over 4.5% as of February 24. From this list, we selected companies known for strong dividend histories and consistent dividend payments. We then chose the top 10 stocks from this list based on the number of hedge funds holding stakes in them at the end of Q4 2024, according to Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
An aerial view of an oil rig at sunrise, emphasizing the power of the natural gas transportation industry.
Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 37
Dividend Yield as of February 24: 6.85%
Energy Transfer LP (NYSE:ET) ranks seventh on our list of the best stocks to buy for passive income. The Texas-based energy company is engaged in pipeline transportation and storage for natural gas, crude oil, and other refined products. In the past 12 months, the stock has surged by over 29%, gaining investor attention. The company has benefited from acquisitions, recently completed expansion projects, and supportive market conditions. In recent quarters, it completed three major acquisitions: Lotus Midstream in May 2023, Crestwood Equity Partners in November 2023, and WTG Midstream in July 2024. In addition, it formed a joint venture with its affiliated MLP, Sunoco LP, to integrate its crude oil and produced water-gathering operations in the Permian Basin.
In the fourth quarter of 2024, Energy Transfer LP (NYSE:ET) reported revenue of $5.27 billion, marking a 6.6% decline from the previous year. However, its adjusted EBITDA rose 8% year-over-year to $3.88 billion, up from $3.60 billion. Looking ahead, the company expects adjusted EBITDA for 2025 to range between $16.1 billion and $16.5 billion. In addition, it has allocated approximately $5.0 billion for growth capital expenditures and around $1.1 billion for maintenance capital expenditures in 2025.
Energy Transfer LP (NYSE:ET) maintained a solid cash position, reporting a distributable cash flow of $1.98 billion. The company recently raised its quarterly dividend by 0.8% to $0.325 per share in January, extending its streak of consecutive dividend increases to 13 years. The stock supports a dividend yield of 6.85%, as of February 24.
Overall ET ranks 7th on our list of the best stocks to invest in for passive income. While we acknowledge the potential for ET as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.