Comparative Analysis: Western Midstream versus Energy Transfer - Which Yields Higher Dividends?
In the realm of Master Limited Partnerships (MLPs), two standout names are Energy Transfer (ET) and Western Midstream Partners (WES). Both companies have carved out significant positions in the energy sector, but a closer look reveals distinct differences in their growth potential and dividend yields.
Energy Transfer, with a planned investment of $5 billion in 2025, is aggressively pursuing growth. Notable projects include the Hugh Brinson Pipeline, supplying natural gas to data centers in Texas, discussions with over 60 power plants and 200 data centers in 14 states, and advancements in a long-awaited LNG export project. Energy Transfer's large scale, diverse asset base, and consolidating approach provide resilience and growth optionality.
Financially, Energy Transfer boasts a strong coverage ratio—over 2 times based on distributable cash flow last quarter—and low leverage near the lower end of its target range. The company has raised dividends for 14-15 consecutive quarters, with guidance for 3%-5% annual growth going forward. Despite these positives, Energy Transfer trades at an attractive valuation (EV/EBITDA about 8x), a discount compared to historical averages and peers.
Western Midstream, by contrast, is a more conservative MLP focused primarily on gathering and processing operations in West Texas and Colorado. About 60% of Western Midstream's revenue is tied to Occidental Petroleum, which also owns about 50% of WES units. This concentration provides a stable cash flow base backed by mostly fee-based contracts, yielding a strong BBB- credit rating and a conservative payout ratio. Western Midstream offers the highest dividend yield in the group, but its growth initiatives, such as progress on the Lake Charles LNG export project, are still in earlier stages awaiting more equity partners.
While Western Midstream’s payout is well-supported and its cash flows are steady and less volatile due to fee-based contracts, its growth runway appears less aggressive and more dependent on a few large customers with significant ownership influence.
| Aspect | Energy Transfer (ET) | Western Midstream (WES) | |-----------------------------|------------------------------------------------|-------------------------------------------| | Growth Capital Expenditure | $5 billion planned in 2025 (up from $3 billion) | Growth capital focused but limited, awaiting partners for LNG export | | Revenue Diversity | Broad across all major US basins | Concentrated ~60% revenue from Occidental Petroleum | | Dividend Growth | 14-15 consecutive raises; 3-5% annual increase expected | Stable with conservative payout ratio | | Coverage Ratio | 1.7x to 2x distributable cash flow | Strong, supported by fee-based contracts | | Credit Rating | Strong financial position, leverage low | BBB- credit rating, conservative balance sheet | | Valuation (EV/EBITDA) | ~8x, below historical and peer averages | Not explicitly stated, generally more stable but less growth upside | | Growth Opportunities | Data center gas demand, LNG exports | LNG export in progress but awaiting equity, fee-based contracts |
In summary, Energy Transfer's scale, growth investments, stable and growing dividends, strong coverage, and valuation discount indicate greater growth potential and justify its higher dividend yield more than Western Midstream's conservative but steadier profile. Energy Transfer's focus on data center gas demand, LNG exports, and industry consolidation strategy position it well for accelerated earnings growth in the 2026-2027 time frame. Western Midstream, with its conservative approach and stable cash flows, aims to use its financial flexibility for additional organic expansions and accretive bolt-on acquisitions as opportunities arise.
- Energy Transfer, with its planned investment of $5 billion in 2025, is exhibiting greater growth potential compared to Western Midstream due to its diverse range of investment projects, such as the Hugh Brinson Pipeline, discussions with power plants and data centers, and LNG export projects.
- Western Midstream, on the other hand, while conservative in approach, is mainly focused on gathering and processing operations, with about 60% of its revenue tied to Occidental Petroleum, resulting in a more stable cash flow base and a higher dividend yield.
- The financial industry regards Energy Transfer as a strong investment choice due to its strong coverage ratio, low leverage, consistent dividend increases, and attractive valuation, which underscores its growth potential.
- Western Midstream seeks to use its financial flexibility for additional organic expansions and accretive acquisitions, depending on opportunities that align with its business, whereas Energy Transfer appears to prioritize industry consolidation, data center gas demand, and LNG exports for its growth strategy.
