What happened

Units of Energy Transfer (ET 1.54%) jumped 21.3% in the first half of 2022, according to data provided by S&P Global Market Intelligence. That was an impressive showing by the master limited partnership (MLP), especially considering that the S&P 500 tumbled nearly 21% during that period.  

Here's a look at what fueled the MLP's outperformance in the first half of 2022. 

So what

Energy Transfer is having an excellent year. The MLP reported strong first-quarter results, generating nearly $2.1 billion of distributable cash flow. While that was below what it produced in the year-ago period, the difference was entirely due to the positive impact of Winter Storm Uri. When that one-time event is taken into account, Energy Transfer's earnings improved across the board, thanks to higher volumes and the acquisition of Enable Midstream. 

Energy Transfer generated enough cash to cover its high-yielding distribution by more than three times. That enabled the midstream company to fund its capital program with room to spare, allowing it to continue paying off debt. Energy Transfer retired $290 million of debt in the first quarter, adding to last year's $6.3 billion in debt reduction. Meanwhile, the company took another step toward improving its balance sheet by agreeing to sell Energy Transfer Canada in a deal that should close later this year. 

The MLP's strong showing and improving financial position enabled it to return more cash to investors. Energy Transfer increased its distribution twice, growing it by 30% overall. At the current unit price, Energy Transfer yields over 8%. Meanwhile, the MLP wants to eventually return its payout to its former peak, implying the potential to increase it by another 50%. 

Energy Transfer also made significant progress on its expansion plan. The MLP secured several customer contracts, putting it closer to finally moving forward with its Lake Charles LNG export facility. The company is also developing a new natural gas pipeline, working on a natural gas liquids pipeline project in Panama, and expanding its petrochemicals business by acquiring some storage assets. These investments should help grow the MLP's cash flow in the future, so it could potentially expand its payout above its former peak. 

Now what

Energy Transfer is starting to turn the corner this year. The MLP has finally gotten its balance sheet in a stronger position, allowing it to return more cash to investors while continuing to invest in expansion projects. The company wants to return its already high-yielding distribution to its former peak, making it a great option for investors seeking a high-octane passive income stream.