Where Will Energy Transfer Be in 3 Years?

Energy Transfer (NYSE: ET) has grown into one of the largest energy midstream companies over the years. The master limited partnership (MLP) has invested heavily in completing organic expansion projects and acquisitions. These investments have paid big dividends for investors. The midstream giant currently offers a distribution yielding nearly 7%. It has grown that payout over the years as its investments have increased its cash flow.

The MLP should grow even larger over the next three years. It has several expansion projects under development and a strong balance sheet to continue growing.

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The acquisition-fueled growth should continue

Energy Transfer has grown its annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from $13.1 billion in 2022 to $15.5 billion last year. That's more than an 18% increase over the past three years. Acquisitions were the main factor fueling that growth. Energy Transfer bought Woodford Express in 2022, Lotus Midstream and Crestwood Equity Partners in 2023, and WTG Midstream last year.

The WTG Midstream deal should continue fueling growth over the next few years. Energy Transfer expects the deal to add $0.04 per unit to its distributable cash flow this year, increasing to $0.07 per unit by 2027.

Energy Transfer will probably continue making accretive acquisitions as opportunities arise. "M&A is clearly a very key part of our growth strategy here," stated co-CEO Tom Long on the company's fourth-quarter conference call. Acquisitions provide an immediate boost to its earnings and often drive future growth. Long stated on the call that acquisitions enabled it to approve several new growth projects. Past deals have added more volumes to its system and opened the doors to new commercial opportunities.

Visible organic growth with more in the pipeline

Speaking of organic expansion projects, Energy Transfer has a lot of them under construction. The company expects to invest $5 billion into growth capital projects this year. That's an increase from the $3 billion it spent last year.

Those projects should come online by the end of next year. The biggest project is the $2.7 billion Hugh Brinson natural gas pipeline, which will transport additional gas supplies from the Permian Basin to the Dallas-Fort Worth area. The company is also expanding its Nederland Flexport, building several natural gas processing plants, and constructing eight natural gas power generation facilities. While some of the projects will come online this year, most will enter commercial service in 2026. "As such, we expect the majority of earnings growth from these projects to significantly ramp up in 2026 and 2027," Long stated on the call.

Energy Transfer has many more projects under development, the biggest being its long-delayed Lake Charles LNG export terminal. The company has been working to commercialize that project and could finally approve construction over the next few years. The company is also working on the first of what could be many projects to supply natural gas to a data center.

The midstream giant sees three themes fueling growth in the coming years. It expects continued strong production growth in the Permian, increasing natural gas power demand, and growing global demand for natural gas liquids. These catalysts should enable Energy Transfer to continue securing new expansion projects over the next three years.

Growing earnings should fuel a rising distribution

Energy Transfer will be an even bigger midstream company in three years. It has several billion dollars' worth of organic expansion projects under construction that should come online through the end of next year. Meanwhile, it should secure additional projects and will probably continue making accretive acquisitions.

Those growth drivers should give Energy Transfer ample fuel to grow its distribution. The MLP plans to increase its high-yielding payout by 3% to 5% per year. It should supply investors with a lucrative and growing stream of passive income over the next three years.

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