This year has been a very good one for Energy Transfer (NYSE: ET). Units of the master limited partnership (MLP) have rocketed nearly 40%. That has outperformed the S&P 500, which has jumped more than 25%. Several factors have fueled that rise, including an acquisition-driven earnings boost and optimism about future growth prospects. Even with that surge, units of Energy Transfer yield almost 7%, well above the S&P 500‘s 1.2%.
The MLP appears poised for another good year in 2025. Here’s what fuels that optimistic view.
Energy Transfer is on track to generate between $15.3 billion and $15.5 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year. That’s a 12% increase from 2023’s level at the midpoint. The midstream giant has benefited from a trio of acquisitions, including Lotus Midstream and Crestwood Equity Partners last year and WTG Midstream in July. It has also completed a few more organic capital projects. These catalysts helped fuel record volumes across several of its businesses during the third quarter.
The midstream giant probably won’t grow quite as fast next year because it won’t get the same boost from its acquisitions of Lotus and Crestwood. However, it still has plenty of momentum heading into 2025.
One factor driving that view is its more recent deal for WTG Midstream. The company expects the acquisition to add $0.04 per unit to its distributable cash flow next year, which should rise to $0.07 per unit by 2027. That’s a meaningful amount. For perspective, the MLP is currently growing its high-yielding distribution at a $0.01 per unit annual rate, which is more than 3% per year.
On top of that, the company has several organic expansion projects that just entered commercial service or will over the next year. For example, it recently completed an expansion of its Orla East processing plant in the Permian Basin and a 30-mile pipeline to transport more oil from the Permian Basin to a major regional storage hub. It also expects to complete the initial phase of the Sabina 2 Pipeline Conversion project by the end of this year. Meanwhile, it anticipates completing several more projects next year, including the Red Lake IV processing plant, the relocation of its Badger processing Plant, the initial phases of its Nederland Flexport expansion project, and some of its gas-fired power plant projects. These projects will add additional sources of incremental cash flow as they enter service.
