Last year was one for the record books in many regards for Energy Transfer (ET -2.22%). The midstream master limited partnership (MLP) set seven operational records during the fourth quarter, fueled by organic growth and acquisitions. That enabled the company to produce stronger-than-expected financial results.

The MLP's strong end to 2023 gives it lots of momentum heading into 2024. Here's a look back at last year and what to expect in the upcoming year.

A record end to a strong year

Energy Transfer ended 2023 on a high note. The company set seven operational records in the fourth quarter, including:

  • Natural gas liquids (NGL) fractionation volumes rose 16%.
  • NGL transportation volumes increased by 10%.
  • Total NGL exports jumped 13%.
  • Crude oil transportation volumes surged 39%.
  • Midstream gathered volumes rose 5%.

The midstream giant benefited from strong market conditions, recently completed expansion projects, and the acquisitions of Lotus Midstream and Crestwood Equity Partners (which closed in November). Those drivers helped grow its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $13.7 billion for the year. That was up nearly 5% from 2022's level and $100 million above the top end of its guidance range.

Energy Transfer also produced $7.6 billion of distributable cash flow last year. That covered the company's 8.9%-yielding distribution with $3.6 billion to spare. The MLP used that cash to fund its growth capital projects ($1.6 billion) and strengthen its balance sheet.

As a result, the company expects its leverage ratio to be in the lower half of its 4-4.5 times target range this year. Those features put its big-time payout on a very firm foundation.

Another strong year ahead

Energy Transfer expects 2024 to be even better. It should benefit from a full year of its acquisitions, which includes the expectation that it will now capture $65 million in annual cost savings from Crestwood this year (and $80 million by 2026). That's more than double the synergies initially expected from the deal. It should also continue to benefit from recently completed organic expansion projects, including full years of service for the Bear Processing Plant and Frac VII.

Those drivers should grow its adjusted EBITDA to a range of $14.5 billion-$14.8 billion this year. That's a 7% increase from last year at the midpoint.

Meanwhile, the company expects to invest $2.4 billion to $2.6 billion into capital projects this year. That higher spending level is partly due to shifting $300 million of growth capital spending from last year into 2024. The company is investing that capital across several projects, including spending $1.25 billion to expand its Nederland Terminal, which should be in service early next year. The company can easily support that higher spending level thanks to its strong distribution coverage and leverage ratios.

The MLP's growing earnings support its plan to steadily increase its high-yielding distribution. Energy Transfer aims to grow its payout by 3% to 5% annually (it delivered a 3.3% growth rate in 2023).

The MLP's strong financial profile puts it in an excellent position to continue consolidating the midstream sector. While it made two sizable deals last year, it's quickly integrating them, evidenced by its increased cost savings estimate from the Crestwood deal. With the rise of M&A activity in the energy sector, it wouldn't be surprising to see Energy Transfer continue rolling up midstream assets this year. Future deals would enhance its scale, saving it money and increasing its earnings and cash flow, giving it more fuel to grow its distribution.

A top-notch income stock

Energy Transfer delivered record operational results and strong financial performance in 2023. It has lots of momentum heading into 2024 due to the late-year closing of its needle-moving Crestwood merger. That will give it more fuel to continue growing its high-yielding distribution, which is on an increasingly firm foundation. Because of that, it's a great stock to buy for those seeking an attractive, steadily rising income stream.