Why It's Wise to Acquire Energy Transfer and Maintain Ownership till the Decade's Close
Energy Transfer, renowned for its income-generating capabilities with a 6.5% distribution yield, is more than just a dividend payer. It's also demonstrating robust growth, a trend expected to persist well into the later part of this decade. Here are three growth catalysts.
Setting the Stage
In 2021, Energy Transfer showcased impressive growth figures, raising its EBITDA by 13% and distributable cash flow by 10%. The significant expansion was spearheaded by acquisitions, such as its merger with Crestwood Equity Partners and the acquisition of WTG Midstream. While growth will scale back in 2022, with a projected 5% midpoint increase in adjusted EBITDA thanks to the WTG Midstream deal and organic expansion projects, earnings growth should pick up once again in 2026. Co-CEO Tom Long expressed excitement about the multitude of development opportunities, confident of their high returns and substantial growth trajectory through the end of the decade.
The Growth Trio
Long highlighted three growth drivers during the company's fourth-quarter earnings call:
- Permian Basin Volume Growth: Energy Transfer will continue to invest heavily in its midstream assets to accommodate the surging Permian Basin volumes. This includes the Hugh Brinson Pipeline project, which approved phase one construction in December to transport 1.5 billion cubic feet per day (Bcf/d) from the Permian to the Dallas area in 2024. Phase 2 could further expand its capacity to 2.2 Bcf/d, potentially increasing the project's cost to $2.7 billion.
- Natural Gas and Natural Gas Liquids (NGL) Demand: With expectations for rising natural gas fuel power demand and the U.S. continuing to be a dominant producer of NGLs, Energy Transfer is preparing for expansion in these areas. The company is currently constructing several projects, including the Nederland Flexport expansion, Frac IX, and Sabina 2 NGL pipeline. Energy Transfer is investing $1.1 billion in these projects to augment its capacity to produce, transport, store, and export NGLs.
- Data Center Power Demand: The growing energy needs of data centers and electric utilities are driving market demand. Energy Transfer recently formed a partnership with CloudBurst to support a new data center project, potentially signaling a surge in similar collaborations.
Energy Transfer: A Winning Combination
Energy Transfer equips investors with a twin advantage: a generous cash distribution yields and strong growth prospects. With its commitment to capitalizing on crucial growth themes, including the Permian Basin, natural gas, and NGLs, the company appears poised to deliver compelling total returns through the end of the decade.
- Energy Transfer's expansion in 2021, driven by acquisitions such as WTG Midstream and the merger with Crestwood Equity Partners, significantly contributed to the company's 13% increase in EBITDA and 10% rise in distributable cash flow.
- Co-CEO Tom Long expressed excitement about the growth opportunities in Energy Transfer's pipeline, mentioning the potential for high returns and substantial growth trajectory due to projects like the Hugh Brinson Pipeline expansion, which is scheduled to transport 1.5 Bcf/d from the Permian to the Dallas area in 2024.
- The partnership between Energy Transfer and CloudBurst to support a new data center project indicates the company's strategic investment in catering to the growing energy needs of data centers and electric utilities, further strengthening its position in the energy market.
- Financial institutions have shown confidence in Energy Transfer's growth potential, as reported by Long during the fourth-quarter earnings call, with the company receiving commitments of up to $5 billion for future investments in its business strategy, emphasizing its strong financial position in the finance and investing sphere.
