Energy Transfer's Growth Prospects Continue to Get Brighter

Energy Transfer (NYSE: ET) is known more for its lucrative cash distributions. The master limited partnership (MLP) currently yields around 7.5%. That's several times higher than the S&P 500, which has a dividend yield of less than 1.5%.

While income is a key draw of this MLP, it also has a compelling growth profile. It's currently working on several organic expansion projects that will drive accelerated earnings growth in 2026 and 2027. Meanwhile, it has a robust pipeline of future growth opportunities. Because of that, Energy Transfer should have plenty of fuel to continue growing its high-yielding distribution in the coming years.

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About to stomp on the gas again

Energy Transfer is on track to produce between $16.1 billion and $16.5 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year. That's about 5% higher than last year's total at the midpoint, a solid growth rate for a company offering such a high-yielding payout. However, it's down from the 13% growth rate it delivered last year, fueled mainly by acquisitions.

The energy midstream giant expects its growth rate to reaccelerate starting next year. Supporting that view is a large wave of organic expansion projects currently under construction. Energy Transfer is investing $5 billion into organic capital projects this year (up from $3 billion last year). These projects include several more natural gas processing plants, its Nederland Flexport NGL Expansion, and the Hugh Brinson Pipeline.

Many of the company's projects have in-service dates in the second half of this year and throughout the end of 2026. "As such, we continue to expect the majority of the earnings growth from these projects to significantly ramp up in 2026 and 2027," stated Co-CEO Tom Long on the company's first-quarter earnings conference call. As a result, its earnings growth rate could reaccelerate, especially once the first phase of its large-scale Hugh Brinson Pipeline comes online at the end of next year.

More growth ahead

Energy Transfer has many more potential expansion projects under development. It has already sold out capacity for phase one of the Hugh Brinson Pipeline. It's currently negotiating with potential customers for well in excess of the capacity for phase two.

Meanwhile, the company continues to make progress in securing customers for its Lake Charles LNG export terminal. Late last month, the company signed a 20-year LNG sale and purchase agreement (SPA) with leading Japanese energy company Kyushu to supply it with up to 1 million tons of LNG per year. The company also signed an SPA with an international energy company and an agreement with a German energy company, both for 1 million tons per year. It had also previously signed an agreement with MidOcean Energy for 5 million tons per year, with MidOcean also agreeing to take a 30% interest in the project. These deals put Energy Transfer closer to making a positive Final Investment Decision on this long-delayed project, which could happen by the end of this year.

Energy Transfer is also pursuing numerous opportunities to supply natural gas to power companies and data centers to support rising electricity demand. It has received requests from over 60 power plants and around 200 data centers. While it won't capture all these opportunities, its extensive natural gas pipeline network puts it in a strong position to capitalize on the expected surge in natural gas demand. Many of these projects are smaller expansions that wouldn't require a lot of capital and would enable the company to generate incremental revenue rather quickly.

The fuel to produce robust total returns

Energy Transfer offers investors the best of both worlds. It provides them with a lucrative income stream and a strengthening earnings growth profile. Because of that, it has the potential to produce robust total returns in the coming years. That makes it a compelling investment opportunity for those comfortable with the possible tax complexities of investing in an MLP that sends its investors a Schedule K-1 federal tax form each year.

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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.