Dividends Under $30: Don't Miss This 7.3% High-Yield Stock

If you want a dividend stock that has the characteristics of a defensive stock, has solid cash flows, and can weather the coming tariff pause expiry, Energy Transfer LP (NYSE:ET) is worth considering. The company does exactly what its name suggests: It is a midstream company with a vast network of pipelines to transfer crude oil and natural gas.

The Right Kind of Dividend Stock You Should Buy In This Environment

Stocks that were considered unequivocally safe one year ago are now being left out of many defensive portfolios. Very few people foresaw such a radical change in trade policy, and those who did would’ve never thought that 30% to 60% tariffs would be applicable on dozens of major U.S. trade partners.

These tariffs are already causing many companies to see an increase in input prices, but the real hit could come in the coming months. There is a tariff pause in place with China and many other U.S. trading partners, and a comprehensive trade treaty has not been signed with the vast majority of these countries.

The prospect of dozens of trade talks taking place concurrently and concluding within one month is tiny. As such, we may see another wave of tariff fears.

The best hedge against it is to buy businesses that derive their profits from sources outside the purview of tariffs. Of course, even midstream companies are going to see an increase in equipment expenses, for example. But the tariff exposure here is still negligible.

Why Energy Transfer LP Is a Solid Dividend Stock to Buy and Hold

Energy Transfer LP is one of the country’s largest midstream companies. The company has significant stakes in high-profile pipelines and also controls interests in other fuel distribution businesses.

Companies like this are unlikely to see much volatility if there’s fear in the broader economy. Midstream companies have long-term contracts, and their cash flows aren’t affected by the prices of oil and gas. They simply act as a toll-road operator for the energy system.

On top of that, since this is a Master Limited Partnership (or MLP), it passes virtually all taxable income to its unitholders. That avoids corporate-level income tax and gives you a stable business with high payouts.

90% of its earnings come from long-term, fixed-fee contracts. That 90% comfortably covers its 7.33% forward yield and then some.

Energy Transfer LP Is Also an Indirect AI Play

If you want an AI “picks and shovels” bet without the volatility that comes with it, you should look into energy companies that are poised to supply the hundreds of AI data centers being built.

The U.S. does not have the infrastructure to support the demand that is expected to come from these data centers. If the AI narrative does turn out to be successful, Energy Transfer could be a big winner. AI data centers are voracious consumers of electricity, and natural gas suppliers will benefit from it.

Many people are choosing to invest in small modular reactor (SMR) companies, along with solar and wind. But natural gas is a good bet if you are looking for near-term winners. Solar and wind just aren’t fit for the kind of stable electricity needed by data centers demanding 24/7 uptime. SMRs could take years to truly bear fruit.

On the other hand, natural gas is a “clean enough” alternative to coal and oil. In February, the company signed an agreement with CloudBurst Data Centers, Inc. to provide “…up to 450,000 MMBtu per day of firm natural gas supply to CloudBurst’s Next-Gen Data Center campus”.

“Energy Transfer is in discussions with a number of data center developers and expects this to be the first of many agreements to supply, store, and transport natural gas to fuel data centers, electric generation,” the company added.

In November last year, Reuters published that the company was seeing a “surge in requests” from “more than 45 power plants,” much of which came from AI.

ET Stock Is Poised to Benefit From Rate Cuts

If rate cuts come without a recession, this would be the best-case scenario for this company. It has $60.6 billion of debt on its balance sheet. It can service that debt and distribute cash, but rate cuts would help tremendously. In FY 2024, Energy Transfer posted $7.1 billion in pre-tax income. The net interest loss took away $3.1 billion from that.

Investors are currently pricing in a September rate cut, along with another rate cut as early as October. This is due to inflation falling much quicker than previously expected. Tariffs could lead to rate cuts coming in later, but cuts are almost inevitable in the long run.

Not only are rate cuts going to make debt servicing cheaper, they’ll also make the yield more attractive. The 20-year and 30-year bonds currently yield slightly above 4.9% each. Many dividend investors have flocked to them, since very few dividend stocks can match their yield and safety. Obviously, Treasuries will be outperformed long-term by dividend stocks due to their underlying growth, but lots of investors aren’t comfortable with taking any risk at the moment.

But if the upcoming rate cuts take those yields below 4% and lower, dividend stocks like ET could surge. And if you want even more safety by sacrificing some yield, I’d look into Enterprise Products Partners LP (NYSE:EPD). It trades at less than two bucks above $30 and yields 6.88%.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.