It expects to complete several expansion projects in the coming quarters to fuel its growth.
The MLP also recently secured several new gas supply deals.
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While Energy transfer(NYSE: ET) pays a high yield distribution (currently 7.8%), growth is a big part of its DNA. The master limited partnership (MLP) had grown its earnings at a compound annual rate of 10% from 2020 to 2024. While growth will slow this year, a reacceleration is on the horizon.
The midstream giant has several expansion projects coming online over the next year, driving incremental cash flow. Meanwhile, its long-term growth prospects continue to improve as MLP secures new expansion opportunities. This growth could give it the fuel to produce solid total returns in the coming years.
Image source: Getty Images.
Energy Transfer recently reported its third quarter results. The midstream company generated $3.8 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) during the period, up from $4 billion in the prior-year quarter. Meanwhile, it produced $1.9 billion of distributable cash flow, down from the $2 billion it generated last year.
It was still enough cash to cover the company’s high-yield distribution payout, which totaled more than $1.1 billion during the quarter. The company has produced nearly $6.2 billion in cash this year, easily covering the $3.4 billion it distributed to investors.
Energy Transfer’s earnings and cash flow fell during the period, primarily due to several one-time items. That offset what was another strong period operationally. The company set new records in NGL terminal and refined products volumes (up 10%), NGL transportation volumes (up 11%), NGL exports (up 13%), and midstream collected volumes (up 3%). Driving those growing volumes was increased capacity from previously completed acquisitions and expansion projects.
Despite the earnings decline in the period, Energy Transfer is on track to deliver adjusted EBITDA slightly below the lower end of its guidance range of $16.1 billion to $16.5 billion. That implies growth of almost 4% compared to last year’s level.
While Energy Transfer’s earnings growth rate has slowed this year, it’s on track to accelerate again in the coming years. The company is investing $4.6 billion in growth capital projects this year and expects to fund another $5 billion in growth-related capital expenditures in 2026. These investments will allow the company to complete several expansion projects over the next year, while laying the foundation for future growth.
Energy Transfer recently completed its Nederland Flexport NGL expansion project and relocated its Badger gas processing plant. Meanwhile, MLP expects to complete next year (Q2 and Q4, respectively) the Mustang Draw gas processing plant and the recently approved Mustang Draw II plant. In addition, it plans to complete the first phase of the $2.7 billion Hugh Brinson gas pipeline by the end of next year. These and other projects will provide it with increasing cash flow in 2026 and 2027.
Energy Transfer also signed several new gas supply agreements during the last quarter that should begin to contribute to its results in the coming years. It has signed multiple long-term agreements with Oracle to supply gas to three of the cloud giant’s US data centers. The first flows should arrive at these facilities later this year, with final completions expected in mid-2026.
Energy Transfer also has pending deals to supply gas to data centers being developed by CloudBurst and Fermi. In addition, it signed a major gas supply agreement with the utility company. entergiawhich will supply incremental gas beginning in 2028. These agreements will provide MLP with incremental cash flow as gas flows begin in the coming years.
The midstream company is also constructing several other long-term expansion projects that will come online in the period 2027 to 2029. Notable projects include Hugh Brinson Phase II (Q1 2027), Bethel Gas Storage Expansion (late 2028) and the $5.3 billion Desert Southwest expansion project (expected commissioning date Q4 2029). It also has several more potential projects in the pipeline, including its proposed LNG export terminal in Lake Charles and an expansion of the Dakota Access pipeline. These projects further enhance and expand the company’s long-term growth prospects.
Energy Transfer has a lot of growth coming up. The company recently landed some new expansion projects and signed several gas supply deals, which should drive accelerated earnings growth in the coming years. Meanwhile, it has more growth projects in development, which enhances its ability to grow in the future.
This growth, when added to the MLP’s high-yield distribution, positions Energy Transfer to produce solid total returns for investors who are comfortable receiving the Schedule K-1 federal tax form it sends each year.
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Matt DiLallo has positions in Energy Transfer. The Motley Fool has posts and recommends Oracle. The Motley Fool has a disclosure policy.
Energy Transfer’s Growth Prospects Continue to Improve was originally published by The Motley Fool
