Energy Transfer Just Sent a Message to Anyone Collecting $13,700 a Year by Raising Its Payout After an Earnings Miss

On November 19 a 74-year-old retiree in Houston collects a $3,425 check from the pipeline partnership he bought two years ago, $13,700 a year at the new rate, because Energy Transfer LP (NYSE: ET) just raised its payout for the 20th straight quarter. The raise came in the same November 3 report in which earnings per unit, at 33 cents, missed the 41 cents expected by the analysts Zacks tracks, a miss of about 20%. The message to anyone collecting that check is that the cash, and not the accounting, sets the payout. Units closed Tuesday at $19.43, up 1.8%, after falling 3.5% the day after the report. At that price the payout yields 7.1%.

A raise on a quarter that missed reads as a message that the cash, and not the accounting, runs the payout: distributable cash flow of $2.52 billion covered the $1.18 billion of distributions 2.1 times, and the miss came from $379 million of paper losses on commodity hedges, about 11 cents a unit. The limit of that reading is that the retained cash is going into pipelines, about $7 billion of growth spending planned for 2027, so unitholders get the 3% raise and the partnership keeps the surplus.

The retiree is a scenario built for this story: a retired machine-shop owner, married to a 68-year-old, with $7 million. He bought 10,000 Energy Transfer units on November 8, 2024, at that day’s $17.30 close, for $173,000, in their regular brokerage account. The units are worth $194,300 today, 2.8% of what they own, and they have sent him seven checks totaling $23,275. His question is the one every ET holder meets at tax time: keep it in the taxable account, buy the next lot through the IRA, or swap to a pipeline that sends a 1099.

What the check is

Energy Transfer paid $0.3325 a unit a year ago and pays $0.3425 now, a raise of 3%. On 10,000 units that is $100 more a quarter and $400 more a year. On the $17.30 he paid, the new rate is a 7.9% yield. The partnership has said it aims to raise the distribution 3% to 5% a year.

Adjusted EBITDA rose 31% to $5.03 billion. The partnership raised its 2026 EBITDA guidance to $19.7 billion to $19.9 billion, $850 million more at the midpoint than it guided to in August. “Our revised 2026 guidance reflected outperformance in the base business,” chief executive Tom Long told analysts.

What makes Energy Transfer different from the dividend stocks around it is the tax form it sends.

The K-1 instead of the 1099

Energy Transfer is a master limited partnership. It pays no federal income tax itself. Its income, deductions and depreciation flow through to each unitholder on a Schedule K-1, which arrives in March rather than the 1099 that lands by February. The partnership’s investor FAQ explains the result: the cash it distributes usually exceeds the taxable income it allocates, the difference lowers the unitholder’s cost basis, and distributions become taxable once basis reaches zero.

The rule of thumb in the MLP industry is that about 80% of each distribution is tax-deferred return of capital. Energy Transfer publishes no figure and the real split is on each year’s K-1, so the table uses the rule of thumb, the couple’s 24% federal bracket and the 3.8% net investment income tax they owe above $250,000 of income.

This year the K-1 saves him about $1,794 of federal tax on the same cash. Each year at the current rate, $10,960 comes off his $173,000 cost, which reaches zero in about 14 years, around 2040, when he is 88. After that every dollar of distribution is a capital gain. And if he sells before then, the deferred amounts come back as ordinary income under the IRS’s recapture rules for partnership sales, about $21,360 so far, on top of the gain in the price.

Why the IRA is the wrong account for it

Moving a tax nuisance into the IRA is the usual instinct. For an MLP it is wrong three times over.

First, the deferral is wasted. An IRA already defers tax, so the 80% that the K-1 shelters buys nothing there.

Second, the IRA can owe tax of its own. An MLP’s operating income is unrelated business taxable income, and IRS Publication 598 lists traditional and Roth IRAs among the trusts that pay it. When the IRA’s gross unrelated business income reaches $1,000 in a year, the custodian must file Form 990-T, and the IRA pays at trust rates, which reach 37% above $16,000 of income. A sale inside the IRA pulls the recapture into that total: on this position the recapture alone would be about $21,360, 21 times the line, and the IRA would pay roughly $5,834 of tax out of its own balance.

Third, there is no step-up at death for anything inside an IRA, and that matters most of all.

The step-up is the whole case for leaving it where it is

IRS Publication 551 sets the basis of inherited property at its market value on the date of death. For a partnership unit held in a taxable account, that resets the basis to the day’s price, so the $21,360 deferred so far, and every dollar deferred after it, is never taxed by anyone. His heirs could sell the units the next week with no recapture and no gain.

For a 74-year-old with children, that turns the K-1 from a nuisance into a plan. Ten more years of checks at the current rate is $137,000, taxed mostly as a loan against basis that is forgiven at death.

What a swap to a 1099 pipeline costs

Suppose the K-1, and the nonresident state returns it can trigger, is more than he wants to deal with. Selling today and buying a pipeline corporation that sends a 1099 looks like this.

The same sale without the MLP deferral would cost $4,004, so the deferral has added $5,938 to the exit bill. Then the income drops. At Tuesday’s prices in Fuse’s data, $184,358 buys $9,031 a year in ONEOK at a 4.9% yield, or $7,034 in Kinder Morgan at 3.8%. Enbridge pays 5.8%, $10,620 a year, but it is Canadian, and a taxable account loses 15% of each payment to withholding until the credit comes back at filing. So the swap to ONEOK costs $9,942 now and about $4,669 a year after that.

The decision

If you own Energy Transfer in a taxable account, as he does, the math says hold it there. It pays 7.1% on today’s price, the cash covers the check twice over, this year’s federal tax on $13,550 of distributions is about $753, and the basis it is spending down is wiped clean for heirs at death. New money for ET belongs in the same account. The IRA is the place for the names that send a 1099 and owe the IRA nothing.

Swap only if the paperwork is costing more than the $1,794 a year the K-1 saves in tax, or if the position has grown past 5% of what you own and the concentration bothers you more than the exit bill. At 2.8%, with a $9,942 tax to leave and $4,669 a year less to live on, this retiree keeps his units and files the K-1 in March.

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