Energy Transfer LP (ET +2.29%) hasn't been a winner for me this year. After hitting a record high in January, the midstream energy stock has declined throughout the following months.
Have I been tempted to sell some or all of my position in Energy Transfer? Not for a second. Here's why I just bought more units of this limited partnership (LP).
NYSE: ET
Key Data Points
1. The price is right
Imagine thinking about buying a new car that you like for $50,000. Now, suppose the dealership reduces the cost to $45,000. Are you more or less likely to buy it? Most people would probably answer "more likely." That makes sense.
I have a similar mindset about Energy Transfer, except I bought the stock earlier this year instead of only thinking about it. But with the LP's unit price lower now than when I made my initial purchase, I think the price is right to buy more.
Energy Transfer's valuation looks attractive on several fronts. The stock trades at a forward price-to-earnings ratio of only 10.8. Its enterprise value-to-EBITDA multiple is an even lower 7.8. If you prefer sales-based valuation metrics, the midstream leader's trailing 12-month price-to-sales ratio is a super-low 0.72.
2. Energy Transfer's distribution is juicy
Another big plus in Energy Transfer's favor is that it pays a distribution that yields a whopping 8%. In some cases, an ultra-high yield can be a bright yellow flag warning investors to stay away. That's not true for Energy Transfer, though.
The company continues to maintain solid distribution coverage with its cash flow. It expects to grow the distribution by 3% to 5% annually. Energy Transfer announced its latest distribution increase of 3% on Oct. 28, 2025.
Management believes that the LP is in the strongest financial position in its history. Even with several acquisitions in recent years, leverage ratios are in the lower half of the target range of 4x to 4.5x.
Perhaps most importantly, Energy Transfer's underlying business generates steady and reliable cash flow to fund the distribution. The company operates around 140,000 miles of pipeline and owns energy infrastructure assets in all major U.S. production basins. In addition, Energy Transfer has significant ownership stakes in energy infrastructure and fuel distribution master limited partnership (MLP) Sunoco LP (SUN +2.56%) and natural gas compression services provider USA Compression Partners, LP (USAC +1.36%).
Image source: Getty Images.
3. The LP's growth prospects look bright
With a juicy distribution yield of 8%, Energy Transfer doesn't need lofty growth prospects to deliver a double-digit percentage total return. The good news, though, is that the LP's growth prospects look bright.
Energy Transfer recently signed multiple deals with Oracle (ORCL +2.43%) to supply natural gas to the tech giant's three U.S. data centers. It also inked a 10-year agreement with electric grid provider Fermi America (FRMI +4.51%) to supply gas to the company's HyperGrid campus near Amarillo, Texas. These deals underscore how important data centers hosting artificial intelligence (AI) models are to Energy Transfer's growth.
The LP is investing heavily to capitalize on its growth opportunities. Energy Transfer is building two natural gas processing plants in the Midland Basin. It's constructing several natural gas-fired electric generation facilities in Texas. The midstream leader is doubling its working natural gas storage capacity in Bethel, Texas. The LP is also expanding multiple natural gas liquids (NGLs) pipelines and adding capacity to crude oil terminals.
I'm not the only one who likes Energy Transfer's prospects. Of the 19 analysts surveyed by S&P Global (SPGI 1.79%) in November who cover the stock, 17 rated it as a "buy" or "strong buy." The two outliers recommended holding Energy Transfer. The average 12-month price target for the stock reflects an upside potential of roughly 32%. Wall Street is justifiably bullish about Energy Transfer, in my opinion.
