With a market capitalization of $65 billion, Energy Transfer (ET 0.05%) is among the top five energy infrastructure stocks in the U.S. Its pipeline, spanning more than 130,000 miles, gathers and stores natural gas, natural gas liquids, crude oil, and refined products, and transports them across the nation.
Energy Transfer stock hit a 52-week high of $21.45 per share on Jan. 22 and has given up some of those gains since. If you think that's still a high price to pay for the pipeline stock, I'll give you five compelling reasons Energy Transfer is a rock-solid, long-term buy now for 2030 and beyond.
1. Resilient and rising cash flows
Almost 90% of Energy Transfer's earnings comes from long-term contracts that have a fixed-fee component, which makes its cash flows quite resilient to the volatility in oil and gas prices.
That may also explain why Energy Transfer's revenue, EBITDA (earnings before interest, taxes, depreciation, and amortization), and cash flow from operations have grown steadily over the years. EBITDA is a useful metric for oil and gas companies as it measures cash flows instead of earnings, which can get skewed because of non-cash expenses like depreciation for companies with a huge physical asset base like pipelines.
ET Revenue (TTM) data by YCharts.
Energy Transfer's adjusted EBITDA -- which excludes non-cash items like profit or sales on disposal of assets and inventory valuations from EBITDA -- hit a record of $15.5 billion in 2024. The company projects 5% higher adjusted EBITDA in 2025, driven by its growth moves.
2. Growth spending on the rise
Energy Transfer announced several big projects last year, including eight natural gas electric power plants and an intrastate natural gas pipeline, the Hugh Brinson.
Energy Transfer also acquired WTG midstream for $3.2 billion in 2024. It has made several acquisitions in recent years, including Enable Midstream Partners, Lotus Midstream, and Crestwood Equity. WTG added 6,000 miles of gas-gathering pipelines in the Midland Basin, eight gas-processing plants, and two under-construction plants to Energy Transfer's portfolio.
After spending $3 billion on growth in 2024, Energy Transfer expects to spend $5 billion this year, with the bulk of it going toward the Permian Basin.
3. The Permian advantage and data center opportunity
Energy Transfer is aggressively expanding its capacity and footprint in the Permian Basin. Plans include adding new processing capacity in West Texas to meet the growing demand for power and artificial intelligence (AI) data centers.
Earlier this year, Energy Transfer bagged its first commercial deal to supply natural gas directly to data centers when it signed a supply agreement with CloudBurst for its data center site in Texas. This could just be the beginning, with management recently stating that Energy Transfer had received requests from over 70 data centers in 12 states.
The Hugh Brinson pipeline is an important project in this context as it will expand Energy Transfer's capacity to transport natural gas from the Permian production sites to premier trading hubs and markets like Texas where data centers are booming.
AI data centers could be big drivers of demand for natural gas. With its presence in Texas, Oklahoma, and Louisiana, Energy Transfer should be able to play the data center boom in the coming years, which should boost its cash flows and support big dividends.
4. Dividend-growth-backed high yield
Energy Transfer stock has generated humongous returns in recent years, with dividends playing a big role. The stock yields a hefty 6.9% today despite hovering near a 52-week high. There are two reasons for this: First, Energy Transfer is structured as a master limited partnership (MLP) and therefore distributes a major chunk of its cash flows as dividends, or distributions as they're called for MLPs. Second, Energy Transfer's distributions are growing, backed by cash-flow growth.
To be sure, Energy Transfer cut its distribution in 2020 amid the pandemic to prioritize debt repayments. Energy Transfer resumed dividend raises soon after, and its debt ratings were also recently upgraded by Standard & Poor's (S&P) and Fitch to BBB with a stable outlook, and by Moody's to Baa2.
Energy Transfer is now targeting annual dividend growth of 3% to 5%, which should boost shareholder returns. The stock is also cheap.
5. Energy Transfer stock is a value buy
Energy Transfer stock is trading at a trailing enterprise value (EV)-to-EBITDA multiple of 8.8 times, which is significantly below its historical multiples. To put some numbers to that, the energy stock traded at an EV/EBITDA multiple of 20 times at one point in the past 10 years and had a median valuation of 10.2 times over the period.
EV/EBITDA is an important metric to value pipeline stocks since they're capital-intensive businesses with high debt. While enterprise value takes debt into account, EBITDA measures the company's cash flows as explained earlier.
At this multiple, with its dividend growth, high yield, and growth opportunities, Energy Transfer looks like a rock-solid stock to buy and hold through 2030 and beyond. You should just be comfortable with some of the tax implications that MLPs carry, such as filing of federal K-1 tax forms.
