Energy Transfer, a master limited partnership (MLP), offers investors the best of both worlds with a rock-solid, high-yielding distribution and significant upside potential. Currently trading at a bottom-of-the-barrel valuation, Energy Transfer provides an opportunity for investors, especially those with $1,000 or less to invest, to potentially achieve high-octane total returns.

One of the main attractions of Energy Transfer is its massive yield, currently standing at around 8.5%. This substantial yield is driven by the MLP's bottom-of-the-barrel valuation, which presents significant appreciation potential. This makes Energy Transfer an enticing investment option for those seeking both income and growth.

Energy Transfer generates a steady cash flow, primarily from stable, fee-based structures that account for about 90% of its earnings. Last year alone, the midstream company produced approximately $7.6 billion of distributable cash flow, distributing $4 billion to investors and retaining $3.6 billion to solidify its financial foundation. The MLP used its retained cash to fund expansion projects and strengthen its balance sheet, allowing it to make two successful acquisitions last year.

Energy Transfer maintains a strong balance sheet and expects its leverage ratio to remain in the lower half of its target range this year. This stability further strengthens the foundation of its high-yielding distribution, which currently stands at 8.5%. This means that a $1,000 investment in Energy Transfer could generate about $85 of annual passive income, providing a solid base return compared to the lower dividend yield of the S&P 500 index fund.

In addition to its attractive current yield, Energy Transfer has plans to increase its distribution by approximately 3% to 5% annually. The MLP aims to achieve this by gradually raising its payment each quarter, offering investors a steadily growing income stream.

Furthermore, Energy Transfer's dirt-cheap valuation suggests significant upside potential. Comparing its valuation to its peers, Energy Transfer ranks among the cheapest in its industry, according to analysts. The average 12-month price target for the MLP is $18.13 per unit, representing over a 20% increase from its current price, while the high-end estimate is $22 per unit, reflecting a 50% increase.

To narrow the valuation gap, Energy Transfer has multiple catalysts on the horizon. One potential option is the use of its growing excess free cash flow to repurchase some of its units. Additionally, the long-delayed Lake Charles LNG project is nearing final approvals, which could provide a significant boost. Furthermore, Energy Transfer plans to continue consolidating the midstream sector, aiming for earnings growth of 7% in 2024.

Overall, Energy Transfer presents an attractive investment opportunity with its high-yielding distribution and potential for substantial price appreciation. With its stable cash flow, low payout ratio, and strong balance sheet, investors can rely on its 8.5% yielding distribution. By investing $1,000 in Energy Transfer, investors can secure a growing income stream while potentially benefiting from meaningful price appreciation.

Disclaimer: The article reflects the opinions of the author, Matt DiLallo, who holds positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned and maintains a disclosure policy.