Better Dividend Stock: Western Midstream vs. Energy Transfer

Core Insights - Energy Transfer and Western Midstream Partners are significant players in the master limited partnership (MLP) sector, providing stable cash flows and high distribution yields of 7.5% and over 9% respectively [1][2] Company Operations - Energy Transfer operates a diversified midstream network, handling various commodities including natural gas, NGLs, crude oil, and refined products, with 90% of its earnings being fee-based [5] - Western Midstream focuses on the Delaware, DJ, and Powder River basins, primarily gathering, treating, processing, and transporting natural gas, NGLs, and crude oil, generating fee-based income secured by long-term contracts [4] Customer and Ownership Structure - Occidental Petroleum is a major customer of Western Midstream, holding a 44.8% direct interest in the MLP, while Energy Transfer does not rely on a single significant customer and controls two other MLPs, enhancing its income and growth profile [6] Financial Position - Energy Transfer is in a strong financial position with a leverage ratio in the lower half of its target range of 4.0-4.5 times and generates cash to cover its payout by more than two times [7] - Western Midstream also maintains a solid financial position with a leverage ratio below 3.0x and expects to generate sufficient free cash flow to cover capital expenditures [8] Growth Prospects - Energy Transfer plans to invest $5 billion in growth capital projects this year, including a new natural gas pipeline and gas processing plants, which are expected to drive earnings growth in 2026-2027 [9][10] - Western Midstream anticipates capital spending between $625 million and $775 million in 2025, with 65% allocated to growth initiatives, aiming for mid-single-digit cash flow and distribution growth [12] Investment Appeal - Both companies offer high-yielding distributions supported by stable cash flows, but Energy Transfer's greater diversification reduces risk and enhances growth potential, making it a more attractive option for sustainable income [13]