Energy Transfer (ET +0.26%) is a rare dividend stock. The master limited partnership (MLP) offers a monster payout. At nearly 8%, it's several times higher than the S&P 500's sub-1.5% dividend yield.
Typically, high-yielding dividend stocks don't grow very fast. That makes this MLP unique: It's growing briskly and has plenty of fuel to keep its growth engine humming along. Here's a look at what's driving the company's above-average growth rate.
NYSE: ET
Key Data Points
Recent deals are paying big dividends
Energy Transfer is delivering high-octane growth this year. Its earnings surged 20% in the second quarter, while its distributable cash flow jumped 32%. The MLP delivered record-setting volumes across several of its businesses, fueled by strong market conditions, organic expansions, and acquisitions.
The company has been enjoying an acquisition-fueled growth spurt this year. It bought Lotus Midstream for $1.5 billion last May and closed its $7.1 billion merger with fellow MLP Crestwood Equity Partners in November. Those deals helped drive record volumes across several of its business platforms this year.
The MLP is about to get another acquisition-fueled boost, having recently closed its highly accretive deal for WTG Midstream. It paid nearly $3.3 billion for the business, which it expects will increase its distributable cash flow by $0.04 per unit next year. It sees that number growing to $0.07 per unit by 2027. For perspective, this deal alone is enough to support the company's plan of growing its distribution by 3% to 5% annually, or around $0.01 per unit each year, for the next several years.
On top of that deal, the company also recently signed an accretive joint venture agreement with affiliated MLP Sunoco (SUN 3.76%). The companies are combining their crude oil and produced water gathering assets in the Permian Basin. Sunoco recently acquired those assets as part of its highly accretive $7.3 billion acquisition of NuStar Energy. That merger is also providing a boost to Energy Transfer, given its stake in Sunoco. The company raised its 2024 adjusted EBITDA guidance range from $14.5 billion-$14.8 billion to $15 billion-$15.3 billion following that deal.
NYSE: SUN
Key Data Points
Lots more growth is coming down the pipeline
Acquisitions are only part of the growth story for Energy Transfer. The company also continues to invest heavily in organic expansion projects. It plans to invest $3.1 billion this year, up from its initial range of $2.4 billion-$2.6 billion. It also continues to add new projects to its backlog.
The MLP currently has projects under construction that should come online through 2026. For example, it's building natural gas liquids export capacity at its Nederland terminal, with the initial phases expected to come online in the middle of next year. It's also expanding its Lone Star Express Pipeline, which should enter service in 2026. In addition, the company has several small natural gas power plants under construction that should start up throughout 2025 and 2026 to support its operations. These and other under-construction organic expansion projects will supply incremental cash flow to support its distribution and growth strategy.
Meanwhile, the MLP is working on several additional organic expansion projects to fuel future growth. Co-CEO Tom Long highlighted them on the company's second-quarter conference call: "We also continue to make progress on the development of several other growth projects, including our Warrior, Blue Marlin offshore project, Lake Charles LNG, a carbon capture and sequestration project with Capture Point, and blue ammonia hubs at Lake Charles and Nederland. We look forward to providing more updates on these projects as customer discussions advance, and we bring them closer to FID (final investment decision)." These large-scale projects include those focused on hydrocarbons and lower carbon energy. Securing these and other projects would enhance and extend the company's long-term growth visibility.
An income stock with lots of growth potential
Energy Transfer enables investors to have their proverbial cake and eat it, too. The MLP offers a high-yielding income stream that it expects to grow by 3% to 5% annually. Thanks to its accretive acquisitions and organic expansion projects, it has ample fuel to support that growth plan. The WTG Energy deal alone can fuel its distribution growth plan for several years. The company's combination of a high-yielding payout and high-octane growth profile should give it the fuel to produce robust total returns in the coming years.
