Energy Transfer's Growth Outlook Just Keeps Getting Better

While Energy Transfer (NYSE: ET) pays a high-yielding distribution (currently 7.8%), growth is a huge part of its DNA. The master limited partnership (MLP) had grown its earnings at a 10% compound annual rate from 2020 through 2024. While growth will slow this year, a reacceleration is on the horizon.

The midstream giant has several expansion projects entering service over the next year, which will fuel incremental cash flow. Meanwhile, its longer-term growth outlook just keeps getting better as the MLP secures new expansion opportunities. This growth could give it the fuel to produce robust total returns in the coming years.

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The speed bump

Energy Transfer recently reported its third-quarter results. The midstream company generated $3.8 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the period, down from $4 billion in the year-ago quarter. Meanwhile, it produced $1.9 billion of distributable cash flow, below the $2 billion it generated last year.

That was still plenty of cash to cover the company's high-yielding distribution payment, which came in at more than $1.1 billion during the quarter. The company has now produced nearly $6.2 billion of 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 for NGL and refined products terminals volumes (up 10%), NGL transportation volumes (up 11%), NGL exports (up 13%), and midstream gathered volumes (up 3%). Fueling those rising volumes were the increased capacity from previously completed acquisitions and expansion projects.

Despite the earnings slump in the period, Energy Transfer is on track to deliver adjusted EBITDA slightly below the lower end of its $16.1 billion-$16.5 billion guidance range. That implies nearly 4% growth from last year's level.

The coming reacceleration

While Energy Transfer's earnings growth rate has slowed this year, it's on track to reaccelerate in the coming years. The company is investing $4.6 billion into growth capital projects this year and expects to fund another $5 billion in growth-related capital spending in 2026. These investments will enable the company to complete several expansion projects over the next year, while laying the groundwork for future growth.

Energy Transfer recently completed its Nederland Flexport NGL expansion project and relocated its Badger gas processing plant. Meanwhile, the MLP expects to complete the Mustang Draw gas processing plant and the recently approved Mustang Draw II plant next year (second and fourth quarters, respectively). Additionally, it anticipates finishing the first phase of the $2.7 billion Hugh Brinson gas pipeline by the end of next year. These and other projects will supply it with increasing cash flow in 2026 and 2027.

Energy Transfer has also signed several new gas supply deals over the past quarter that should start contributing 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 U.S. data centers. The first flows should reach these facilities by the end of this year, with final completions expected by the middle of 2026.

Energy Transfer also has pending deals to supply gas to data centers under development by CloudBurst and Fermi. Additionally, it signed a major gas supply deal with utility Entergy, which will supply incremental gas starting in 2028. These deals will provide the MLP with incremental cash flow as the gas flows begin over the next few years.

The midstream company is also building several other longer-term expansion projects that will come online in the 2027 to 2029 time frame. Notable projects include Hugh Brinson Phase II (first quarter of 2027), Bethel gas storage expansion (late 2028), and the $5.3 billion Desert Southwest Expansion project (fourth quarter 2029 expected in-service date). It also has several more potential projects in the pipeline, including its proposed Lake Charles LNG export terminal and an expansion of the Dakota Access oil pipeline. These projects further enhance and extend the company's long-term growth outlook.

Adding more fuel to its growth engine

Energy Transfer has a lot of growth coming down the pipeline. The company has recently secured a few new expansion projects and signed several gas supply deals, which should fuel accelerated earnings growth in the coming years. Meanwhile, it has more growth projects under development, enhancing its ability to grow in the future.

This growth, when added to the MLP's high-yielding distribution, positions Energy Transfer to produce robust total returns for investors who are comfortable receiving the Schedule K-1 federal tax form it sends each year.

Matt DiLallo has positions in Energy Transfer. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.