Prediction: Energy Transfer (ET) Will Crush the S&P 500 in the Second-Half of 2026.

Energy Transfer (NYSE: ET), one of the largest midstream companies in the United States, is usually considered a stable income investment rather than a market-beating one. But since the start of the year, its stock has rallied 17% and outperformed the S&P 500's 9% gain. Let's see why it beat the market, and why it could maintain that momentum in the second half of 2026.

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Why is Energy Transfer beating the market?

Energy Transfer operates over 140,000 miles of pipeline across 44 states. It transports natural gas, liquefied natural gas (LNG), natural gas liquids (NGLs), crude oil, and other refined products through its pipelines. It also exports some of its natural gas products.

Unlike big oil stocks, which benefited from higher oil prices in the first half of 2026, Energy Transfer isn't as heavily exposed to fluctuating commodity prices since it simply charges upstream and downstream companies "tolls" to use its infrastructure. As long as oil and gas keep flowing through its pipelines, it will generate plenty of cash to support its dividends.

Nevertheless, the soaring demand for oil and natural gas still boosted its crude oil and NGL volumes to record levels in the first quarter of 2026. It also secured major long-term agreements with utilities and data centers to supply natural gas to the booming AI market, transforming it from a reliable income play to a higher-growth AI infrastructure stock.

Why will Energy Transfer continue to beat the market?

In the first quarter, Energy Transfer predicted its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would rise 14%-16% in 2026. That was up from its prior outlook for 9%-12% growth, and would mark an acceleration from its 3% growth in 2025.

With an enterprise value of $135.3 billion, Energy Transfer trades at just seven times this year's adjusted EBITDA and pays a high forward yield of 6.9%. As more investors rerate it as an AI infrastructure play, its valuation will rise, driving its stock to outperform the S&P 500.

Energy Transfer will also remain a reliable stock for income-seeking investors. In 2025, its adjusted distributable cash flow (DCF) of $8.2 billion easily covered its $4.6 billion in total distributions, and that low payout ratio gives it plenty of room for future hikes. It also blends a return of capital with its income to pay more tax-efficient distributions.

However, Energy Transfer is a master limited partnership (MLP) that technically treats you as a partner rather than a regular shareholder. Therefore, you'll need to report its income separately on a K-1 form when you file your taxes every year. If you're fine with that extra step, Energy Transfer could offer a compelling blend of growth and income for the foreseeable future.

Leo Sun has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.