What happened
Units of Energy Transfer (ET 0.44%) soared 44.2% in 2022, according to data provided by S&P Global Market Intelligence. That far outpaced the broader market, as the S&P 500 tumbled 19.4% for the year.
The master limited partnership (MLP) benefited from strong conditions in the energy market. That catalyst and its improving balance sheet gave it the fuel to provide investors with a massive distribution increase.
So what
Energy Transfer benefited from strengthening conditions in the energy market last year. Higher oil and gas prices incentivized producers to increase their output, which boosted the volumes flowing through the company's pipeline system and other assets. Energy Transfer also benefited from acquisitions and expansion projects.
These catalysts helped Energy Transfer grow its earnings and cash flow by 20% in the third quarter. They also put the company on track to exceed its initial full-year earnings forecast. That enabled the MLP to produce enough cash flow to cover its high-yielding distribution and expansion program with room to spare, allowing it to repay debt.
Energy Transfer's steadily improving balance sheet gave it more flexibility to return additional cash to investors. It increased its distribution each quarter, growing its payout by an eye-popping 70%. At its recent unit price, Energy Transfer's distribution yielded more than 8%. The company hopes to continue pushing the payout toward its goal of returning it to its former peak, implying the potential for another 15% increase from its most recent level.
The MLP also progressed toward finally starting construction on its Lake Charles LNG export terminal in Louisiana. It signed several sale and purchase agreements with LNG buyers. The company was also working on additional contracts. This progress has the MLP on track to approve the project this year. It would drive significant volume growth for its natural gas pipeline system while supplying it with incremental income from LNG sales.
Now what
Energy Transfer staged an impressive rebound last year. The MLP had to slash its distribution during 2020 to shore up its balance sheet, but with its finances back on solid ground, the company was able to return more cash to investors last year.
Energy Transfer has several expansion projects under construction and more in the pipeline that could allow it to keep increasing its payout. If the company can continue growing its distribution, it should have the fuel to produce market-beating total returns in the coming years. That makes it a potentially attractive option for those seeking income and upside potential.
