Billionaire David Tepper has invested about $141 million in this mega-dividend stock, and it’s a big buy right now.

What does David Tepper do when he’s not busy with the Carolina Panthers football team? Making a lot of money can be at the top of the list.

Tepper is considered one of the greatest hedge fund managers of this century. Thanks to the impressive growth of his 1993-founded fund, Appaloosa Management, his net worth now stands at nearly $20.6 billion.

This huge sum is a direct result of Mr. Tepper’s years of wise stock picking. Appaloosa’s portfolio is chock-full of winners, and he continues to do so. Tepper has invested about $141 million in this mega-dividend stock, and it’s now a screaming stock.

middle class monster

The billionaire hedge fund CEO is particularly fond of tech stocks. Appaloosa’s holdings include five of the Magnificent Seven stocks. But Tepper doesn’t limit himself to just one area.His second biggest position, unrelated to technology, is midstream energy leader energy transfer (ET 0.90%).

Energy Transfer operates more than 125,000 miles of pipeline. The company’s assets also include natural gas liquids (NGL) rectification units, storage facilities, terminals and other energy infrastructure facilities. The company operates in all major oil and gas producing regions in the United States.

Acquisitions have been an important source of Energy Transfer’s growth in recent years. For example, the company completed its $7.1 billion acquisition of Crestwood Equity Partners LP in November 2023.

Tepper owns approximately 9.8 million shares of Energy Transfer stock. He started his first position in 2017. Since then, he has bought and sold the stock several times, but Energy Transfer still represents almost his 2.4% of his total portfolio.

Why Energy Transfer is a great value

I think Energy Transfer is a great buy right now, and not just because Tepper owns it. There are several reasons why I like stocks.

Let’s start with the company’s distribution. Energy Transfer’s distribution yield is currently 8.75%. Last month, the company increased its dividend by 3.3%. The goal is to increase distribution volume by 3% to 5% annually.

Evaluation is also an important factor. Energy Transfer’s forward earnings multiple is just 8.3x. Just how cheap is it?Overall S&P500 The forward P/E ratio for the energy sector is over 11.8x.

I like when a company’s management is fully involved in the game. This helps ensure that the interests of shareholders (unitholders in this case) are aligned. Energy Transfer’s management and independent board members own approximately 11% of the company. This is more than five times the insider ownership level of the midstream energy leader’s peers.

What about growth? I think Energy Transfer is very good in this respect as well. Indeed, the drive to reduce carbon emissions will almost certainly encourage the adoption of renewable energy sources. However, demand for the NGLs, natural gas, and crude oil that Energy Transfer transports and stores should further increase in the coming decades.

The company is also positioning itself for the future. For example, Energy Transfer is working to capture and transport carbon dioxide through existing pipelines. It also operates eight renewable natural gas facilities.

What’s not to like?

Like any investment, energy transfers have some risks. The company’s long-term debt exceeds $51 billion. If interest rates remain high or rise in the future, Energy Transfer’s borrowing costs may increase, which could adversely affect its earnings.

Inventory may also change. While Energy Transfer’s earnings and cash flow are well protected from oil and gas price fluctuations, its unit prices are not.

Finally, Energy Transfer is a master limited partnership (MLP). The tax treatment associated with investing in MLPs is more complex than that of other stocks.

The good news is that these downsides don’t outweigh the many positives that Energy Transfer offers investors. That definitely seems to be the case with David Tepper.