Energy Transfer(NYSE: ET) is one of the largest energy midstream companies in the country. It has a nearly nationwide footprint of 144,000 miles of pipelines, extensive storage and export terminal capacity, and other energy infrastructure assets that support the flow of oil, natural gas, and other energy products from wells to end users.
Building on its established presence, the Dallas, Texas-based company is investing heavily to expand its footprint and deliver healthy earnings growth. That could give it the fuel to produce high-octane total returns for energy investors in the coming years.
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Energy Transfer’s extensive midstream operations generate stable cash flow. Fee-based revenue frameworks, such as long-term, fixed-rate contracts and government-regulated rate structures, provide about 90% of its earnings.
During the first half of 2025, the master limited partnership (MLP) produced nearly $4.3 billion in distributable cash flow. It distributed almost $2.3 billion to investors and retained the rest. That comfortable payout ratio puts the MLP’s 7.8%-yielding distribution on a very solid foundation.
Energy Transfer also has a strong balance sheet. Its leverage ratio is currently in the lower half of its 4.0-4.5 times target range. That puts it in the strongest financial position in its history, further supporting its high-yielding payout.
Energy Transfer’s stable cash flow and bond-like income stream are only part of its story. The midstream giant has a lot of growth on the horizon. It’s investing $5 billion into growth capital projects this year, which will fuel accelerating earnings growth as they come online over the next year. Most of those projects will expand its extensive infrastructure in its home state.
For example, one notable expansion project is the Hugh Brinson Pipeline. The 400-mile gas pipeline will extend from Waha in the western part of the state to Maypearl, Texas, just south of Dallas. Phase I of the $2.7 billion project should come online at the end of 2026, followed by Phase II in early 2027.
Energy Transfer is also expanding its natural gas liquids (NGL) capacity at its terminal in Nederland, TX, building another NGL fractionator in Mont Belvieu, TX, constructing two more gas processing plants in the Permian Basin, and building out eight gas-fired power plants to support its operations in Texas. Those projects should enter commercial service through 2026.
Meanwhile, the company’s largest project is the recently approved Desert Southwest Pipeline project. The $5.3 billion, 516-mile pipeline will move gas from Waha to Phoenix, Arizona, when it comes online at the end of 2029. This project gives Energy Transfer visible earnings growth through the end of the decade.
The midstream giant is pursuing several additional expansion projects. The biggest is the long-delayed liquefied natural gas (LNG) export terminal in Lake Charles, Louisiana. The company has been working to secure the customers needed to support the project and partners to help fund its construction. The MLP is hoping to finally make a positive final investment decision (FID) on Lake Charles LNG early next year.
Meanwhile, the company is pursuing several projects to supply natural gas to AI data centers. Earlier this year, it signed a deal to provide gas to CloudBurst’s Next-Gen Data Center campus near San Marcos, TX, which could be operational next year, assuming CloudBurst makes an FID this year. The company recently signed a deal to supply Fermi America with gas for its HyperGrid project in Amarillo, TX. At 18 million square feet spread across 5,200 acres, HyperGrid is one of the largest planned data centers in the country. Those are just two of the roughly 200 data centers it could supply gas to in the future. The company is also pursuing opportunities to supply gas to more than 60 power plants, many of which are also aiming to support the AI data center power boom.
Securing these and other potential projects would give Energy Transfer more fuel to grow its earnings and distribution in the future. The MLP conservatively plans to increase its payout by 3% to 5% annually over the coming years, allowing it to grow its distribution to investors while retaining more cash to fund its robust expansion opportunity set.
Energy Transfer generates stable and steadily rising cash flows to support its high-yielding distribution. That payout provides a nice base return, which should steadily increase in the future. Additionally, the MLP’s large and growing backlog of expansion projects should fuel meaningful earnings growth in the coming years, significantly boosting its total return potential. That high return potential makes Energy Transfer a strong buy for energy investors who are comfortable receiving the Schedule K-1 Federal Tax Form the MLP sends 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.
