Energy Transfer (ET 1.15%) is known more as an income investment. With a distribution yield currently hovering around 6.5%, that makes sense.
However, the master limited partnership (MLP) offers more than an attractive income stream. It's also growing at a solid clip, which should continue through at least the end of the decade. Here are three factors fueling that view.
NYSE: ET
Key Data Points
Setting the stage
Last year, Energy Transfer grew its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 13%, while its distributable cash flow rose 10%. The main factor fueling its growth was acquisitions, specifically, its merger with Crestwood Equity Partners at the end of 2023 and its acquisition of WTG Midstream last July.
Growth will moderate a bit this year. It expects to deliver adjusted EBITDA growth of about 5% at the midpoint of its guidance range, driven by the WTG Midstream deal and organic expansion projects. However, earnings growth should reaccelerate in 2026. Co-CEO Tom Long noted on the company's fourth-quarter earnings call, "We're currently executing on a large opportunity set of growth projects, and we're excited to deploy capital on these impactful opportunities that are expected to provide strong returns and a significant growth trajectory through the end of the decade." He then ran through the three areas driving its growth on the call, highlighted on the following slide:
Image source: Energy Transfer.
The growth trio
Long stated on the call that "we will continue to see strong volume growth out of the Permian Basin, where we will continue to invest capital in our midstream assets." The company has approved several expansion projects to support growing Permian Basin volumes over the past year. The most notable expansion is the Hugh Brinson Pipeline project. It approved the first phase of the natural gas pipeline in December, which will have the capacity to transport 1.5 billion cubic feet per day (Bcf/d) from the Permian to the Dallas area when it enters service at the end of next year. Phase 2 could expand the capacity to 2.2 Bcf/d, and the project's price tag to $2.7 billion. Energy Transfer also recently approved the construction of the Badger and Mustang Draw natural gas processing plants to help support growing gas volumes in the Permian.
The production growth in the Permian will help support rising demand for natural gas and natural gas liquids (NGLs), the other two major growth themes the company sees ahead.
On gas growth demand, Long noted: "The broader consensus, combined with the number of inbounds we're receiving, suggests that natural gas fuel power demand will increase significantly in the future. We believe the growth needed to accommodate this demand will be significant, and we are in a unique position to capitalize on this opportunity set." For example, Energy Transfer recently signed a new partnership with data center developer CloudBurst to support one of its new projects. That's likely the first of many projects to support growing gas-fired power demand from data centers and electric utilities.
"Lastly," Long noted, "the global demand for U.S. NGL production remains strong and continues to support further development of our NGL infrastructure." The company currently has several NGL-related projects under construction, including the Nederland Flexport expansion, Frac IX, Marcus Hook optimization, Lone Star Express optimization, Sabina 2 NGL pipeline, and storage upgrades at Mont Belvieu and Spindletop. The company is investing $1.1 billion across those projects this year to further increase its capacity to produce, transport, store, and export NGLs.
These projects are only the beginning. Energy Transfer is working on additional expansion opportunities across all three themes. For example, growing oil and gas volumes from the Permian could eventually flow down to the company's proposed Lake Charles LNG export terminal and Blue Marlin offshore oil port near Nederland. Meanwhile, it has received calls from over 70 prospective data center projects across a dozen states seeking gas supplies to help provide some or all of their power needs. Securing these and other projects would further enhance and extend its long-term growth outlook.
Energy Transfer offers income and growth
Energy Transfer can provide investors with the best of both worlds. It pays a high-yielding cash distribution and should grow its earnings at a high rate in the coming years as it capitalizes on three major growth themes. It could have the fuel to produce strong total returns, making it look like a compelling long-term investment opportunity through at least the end of the decade.
