3 High-Yield Stocks to Buy With $50,000 and Hold Forever

Key Points

• Energy Transfer has cleaned up its balance sheet, and its distribution is in good shape.

• Enterprise Products Partners can be a core high-yield holding.

• Western Midstream has a high yield and growing distribution.

• 10 stocks we like better than Energy Transfer ›

If you're looking to generate an extra $1,000 a month in income, you can do that by investing $50,000 each into three leading pipeline master limited partnerships (MLPs). Note, however, the payouts will be on a quarterly basis.

The pipeline sector, by and large, is a toll road type of business, which means energy prices don't have much direct impact on companies' operational results and cash flows. The companies in the sector are currently experiencing a very favorable environment, while their valuations are attractive from a historical basis.

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That makes this a great time to scoop up these stocks and get some very high yields. Let's look at three top stocks to consider.

Image source: Getty Images.

Energy Transfer: 7.6% yield

A $50,000 investment in Energy Transfer (NYSE: ET) will currently generate about $3,800 a year in distribution income, which comes out to more than $315 a month (or $950 per quarter).

The company's distribution is well supported by its distributable cash flow (operating cash flow minus maintenance capital expenditures), which was a robust 1.7 times last quarter. That means the company's cash flow before any spending on growth projects easily covers its payout.

Energy Transfer has also worked on improving its balance sheet over the past several years, lowering its leverage to the low end of its targeted range. Building pipelines is a capital-intensive business, but one that throws off a lot of cash flow, so companies generally carry a fair amount of debt.

At the same time, about 90% of Energy Transfer's 2025 EBITDA (earnings before interest, taxes, depreciation, and amortization) is expected to come from fee-based contracts, which carry no energy price or spread risk, and it has the most take-or-pay contracts in its history. These contracts mean that it gets paid regardless of whether customers use its pipelines or other services.

Energy Transfer has a strong pipeline of growth projects and expects to grow its distribution by 3% to 5% annually.

Enterprise Products Partners: 6.9% yield

If you made a $50,000 investment in Enterprise Product Partners (NYSE: EPD) right now, it would produce about $3,450 a year in distribution income, which comes out to more than $287 a month (or $863 quarterly).

The company has been one of the most consistent in the midstream space, increasing its distribution payout for 27 consecutive years. The company takes a conservative approach and had a 1.6 times coverage ratio last quarter and leverage of only 3.1 times. Its balance sheet is a source of strength, with its long-term debt locked in for long periods of time at low interest rates.

Like Energy Transfer, it also relies on fee-based contracts (about 80% of its business), often with take-or-pay provisions and inflation escalators. It also has a nice growth project backlog, which should power its growth next year.

It raised its distribution by 3.8% year over year last quarter, and has plenty of room to continue to raise it in the future.

Westen Midstream Partners: 9.6% yield

Investing $50,000 in Western Midstream Partners (NYSE: WES) will get you about $4,750 a year in distributions, which comes out to approximately $400 a month (or $1,188 per quarter).

Like Energy Transfer and Enterprise, its distribution is well covered by its cash flows, and its leverage is below 3 times. The company primarily serves its parent, Occidental Petroleum (NYSE: OXY), which owns a 40%-plus stake in the partnership. That in itself gives the company strong visibility into cash flows, but beyond that, its contracts generally have minimum volume commitments (MVCs) or are cost of service, which ensures it gets an appropriate return on any projects.

Western is currently building out its produced water business through both organic projects and acquisitions. It is acquiring Aris Water Solutions (NYSE: ARIS) in a $2 billion deal, while its largest organic growth project is the Pathfinder produced water system, which is scheduled to come into service in 2027. That should provide solid growth, while the company is looking to grow its distribution by mid to low single-digit percentages.

Bottom line

Energy Transfer, Enterprise Products Partners, and Western Midstream are a trio of attractive pipeline stocks with solid balance sheets that are well-positioned to continue to grow their distributions. Put $50,000 into each right now, and you'll get the equivalent of an extra $1,000 a month in distributions, with that only set to grow over time.

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Geoffrey Seiler has positions in Energy Transfer, Enterprise Products Partners, and Western Midstream Partners. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.