Unitholders of Energy Transfer LP (ET +1.66%) couldn't be blamed for breathing a sigh of relief that 2025 has drawn to a close. The midstream energy leader's unit price has declined by a double-digit percentage this year, while the S&P 500 (^GSPC 0.14%) has delivered a third consecutive year of double-digit returns.
But is Energy Transfer stock a buy now? I think the answer is a resounding "yes" for three primary reasons.
NYSE: ET
Key Data Points
1. A fantastic distribution
Investors haven't experienced the full brunt of Energy Transfer's sell-off in 2025. There's a simple reason why. The limited partnership (LP) pays a distribution yield of roughly 8.2%.
Even better, Energy Transfer's distribution is growing. The LP announced a distribution increase in each of the first three quarters of 2025. Most recently, it boosted the distribution by 3.1% year-over-year in October.
I expect those distribution hikes to continue. Energy Transfer is targeting annual distribution growth of between 3% and 5%. That goal seems attainable, especially considering the LP boasts the strongest financial position in its history. The debt load shouldn't be a problem, given Energy Transfer's leverage ratios, which are in the lower half of its target range of 4.0x to 4.5x.
Energy Transfer's third-quarter statistics underscore just how well-positioned the midstream company is to keep raising its distributions. Distributable cash flow was roughly $1.89 billion, while distributions to partners were $1.14 billion. That translates to a comfortable distribution coverage ratio of 60%.
2. Solid growth prospects
Don't let the disappointing 2025 performance fool you. Energy Transfer continues to have solid long-term growth prospects.
The ongoing data center boom, fueled by the increased adoption of artificial intelligence (AI), is a particularly important growth driver. For example, in recent months, Energy Transfer announced agreements with Oracle (ORCL +0.94%) to supply around 900 million cubic feet per day of natural gas to three of its U.S. data centers. The LP also announced a 10-year deal with Fermi America (FRMI +7.58%) to provide gas to its next-generation AI hypergrid campus located near Amarillo, Texas.
The growth opportunities aren't limited to the U.S. Energy Transfer's total natural gas liquids (NGL) exports jumped 13% in the third quarter of 2025, setting a new record for the LP.
Energy Transfer has a robust project backlog to capitalize on its growth opportunities. Two natural gas processing plants in the Midland Basin are expected to launch in 2026. The midstream leader also has several natural gas and NGL pipeline expansion projects underway, as well as expansions to its Price River crude oil terminal.
Image source: Getty Images.
3. An attractive valuation
Investors won't have to pay a premium to enjoy the fantastic distributions and solid growth prospects that Energy Transfer offers. The LP's valuation is quite attractive.
Energy Transfer's units trade at a forward price-to-earnings ratio of only 10.3. This multiple compares favorably with other top midstream energy stocks. For example, Enterprise Products Partners' (EPD +0.59%) and MPLX's (MPLX 0.69%) forward earnings multiples are 11.1 and 11.3, respectively. Rivals such as Enbridge (ENB +0.67%), Kinder Morgan (KMI +0.73%), and The Williams Companies (WMB +0.60%) have much higher forward price-to-earnings ratios than Energy Transfer.
Management pointed out Energy Transfer's attractive valuation in the third-quarter investor presentation. The LP's trailing 12-month enterprise value to EBITDA ratio at the time of the presentation in early November 2025 ranked second-lowest among a peer group that included nine other companies.
Unsurprisingly, the management team has invested heavily in Energy Transfer with their own money. Around 10% of units are owned by insiders, a much higher ratio than the averages for the energy sector, the midstream energy industry, and the S&P 500.
