Energy Transfer (ET +0.85%) currently pays a monster distribution. The master limited partnership's (MLP) payout yields more than 7%. That's several times higher than the S&P 500. Its 1.2% dividend yield is currently near a 20-year low.
The MLP's big-time payout should continue growing in the future. It already has a tremendous amount of fuel in the tank and will likely add more fuel for its growth engine in the coming quarters.
NYSE: ET
Key Data Points
Filling up the tank
Energy Transfer has revved up its growth engine over the past year. The midstream giant has ramped up its consolidation strategy by making several acquisitions. Last November, it bought fellow MLP Crestwood Equity Partners in a $7.1 billion deal. Meanwhile, it closed its nearly $3.1 billion acquisition of WTG Midstream in July. The MLP has also completed several expansion projects. Those growth-related investments have it on track to boost its adjusted EBITDA by 12% this year.
The MLP has plenty of visible growth coming down the pipeline. Co-CEO Tom Long discussed the company's continued expansion on its third-quarter conference call. He stated, "We now expect 2024 growth capital expenditures to be approximately $2.9 billion, which will be spent primarily in the NGL and refined products and midstream segments." The company is currently constructing several projects that will come online through the end of 2026.
For example, Long noted that the initial phase of its NGL export capacity project at its Nederland Terminal should enter service in the middle of next year. Meanwhile, it expects to complete its ninth NGL fractionator at its Mont Belvieu complex in the fourth quarter of 2026. The company is also building eight 10-megawatt natural gas power plants to support its operations and increase system reliability for the company and its customers over the next two years. These projects give it a lot of visibility into its ability to grow its cash flows over the next few years.
Working to add more fuel to the tank
Energy Transfer is also working hard to develop additional expansion opportunities. Long stated on the call: "We also continue to make progress on the development of several other growth projects, including our Lone Star pipe optimizations, Warrior, Blue Marlin offshore oil project, Lake Charles LNG, a carbon capture and sequestration project with CapturePoint, and blue ammonia hubs at Lake Charles and Nederland."
Fellow Co-CEO Marshal McCrea discussed some of these potential growth projects later in the call. On Warrior, he highlighted that "We've made tremendous progress" in securing the commercial contracts needed to make a Final Investment Decision. The company is so confident that it will move forward with this project that it has already locked in an option to purchase the steel needed to construct the pipeline. That project will enable Energy Transfer to use some underutilized capacity, which should enable it to generate a good rate of return for the company.
"We're very bullish on getting [Lake Charles] LNG to the finish line," stated McCrea on the call. The company recently signed agreements with contractors to build the facility. It also believes the new administration will be more supportive of LNG export projects, which should enable it to get the permits it needs to move forward. The company still has a lot of work to do. "We've got partners we'll need to bring in, and of course, financing," stated McCrea on the call. However, he also noted that "we do have a lot of momentum."
Meanwhile, the company is seeing a meaningful uptick in demand for additional gas pipeline infrastructure to support the expected surge in power demand over the coming years, powered partly by AI data centers. Long noted on the call that: "We have never seen this level of activity from a demand-pull standpoint and these opportunities are truly spread across our natural gas footprint from Arizona to Florida and from Texas to Michigan." The company believes it's in the best position to capitalize on this demand because of the strategic location of its pipeline infrastructure.
Lots of growth is coming down the pipeline
Energy Transfer has hit the accelerator this year, fueled by acquisitions and expansion projects. Given its robust backlog and extensive pipeline of future expansion opportunities, it has a lot more growth ahead. Those projects should give the MLP plenty of fuel to continue increasing its distribution, which it's targeting to grow by 3% to 5% per year. That combination of income and growth should help fuel robust total returns for investors. That makes Energy Transfer a compelling opportunity for those comfortable investing in an MLP that sends its investors a Schedule K-1 Federal Tax Form each year.
