Where Will Energy Transfer Stock Be In 5 Years?
Key Takeaways
This growing midstream company still has a bright future.
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4 min read
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investment
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July 8, 2025
04:30 AM
The Motley Fool
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This growing mid company still has a bright future
Energy Transfer (ET -1. 17%) is considered by many to be a reliable income investment
It's a mid company that operates over 135,000 miles of pipeline across 44 states, and it charges up and down companies to use its infrastructure with its "toll road" model
The operations are well-insulated from volatile commodity prices
As long as its customers keep their crude oil, natural gas, liquefied natural gas (LNG), and other refined ducts flowing through its pipelines, it can generate stable fits to cover its distributions
Image source: Getty Images
As a master limited partnership (MLP), Energy Transfer merges the tax advantages of a private partnership with the liquidity of a publicly traded stock, and it aims to pay out most of its fits -- which are measured as its earnings per public unit (EPU) -- as distributions to its investors
It currently pays a forward annual dividend of $1. 31, which translates to a forward yield of 7. 2% and can be comfortably covered by its expected EPU of $1. 40 for 2025
Over the past five years, Energy Transfer's stock rallied 155% and dered a total return of 293% after including its reinvested distributions
The S&P 500 only generated a total return of 116% during the same period
Let's see why Energy Transfer beat the market by such a wide margin -- and if it can maintain its momentum over the next five years
What happened to Energy Transfer over the past few years
Over the past five years, Energy Transfer expanded its pipeline network by more than 45,000 miles
That growth was driven by its organic expansion as well as its acquisitions of Enable Mid Partners, Lotus Mid, Crestwood Energy Partners, and WTG Mid
From 2019 to 2024, it grew its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at a CAGR of 7%
Its EPU, which includes the depreciation costs for its pipelines and the integration expenses of its acquisitions, grew at a lumpier rate
Its annualized distributions per unit (DPU) also fluctuated with its EPU: Metric 2019 2020 2021 2022 2023 2024 Adjusted EBITDA $11. 2 billion $10. 5 billion $13. 1 billion $13. 1 billion $13. 7 billion $15. 5 billion EPU $1. 28 Annualized DPU $1. 30 Data source: Energy Transfer
However, MLPs usually cover their distributions with their distributable cash flow (DCF) -- which excludes the messy depreciation costs of its pipelines as well as the near-term noise from its acquisitions -- instead of rigidly pinning their DPU to their EPU
By that measure, its annualized DCF still easily covered its total distributions over the past six years: Metric 2019 2020 2021 2022 2023 2024 Annualized DCF* $6. 3 billion $5. 7 billion $8. 2 billion $7. 5 billion $7. 6 billion $8. 4 billion Total distributions $3. 2 billion $2. 5 billion $1. 8 billion $3. 1 billion $4 billion $4. 4 billion Data source: Energy Transfer. *Adjusted basis
Back in 2020, Energy Transfer's EPU and DCF declined as the pandemic forced many of its up and down customers to temporarily suspend their operations
But it recovered as those headwinds dissipated, and it aggressively expanded out of that downturn by gobbling up its aforementioned peers
What will happen to Energy Transfer over the next few years
Over the next five years, the secular growth of the LNG export market, the potential completion of its Lake Charles LNG ject in Louisiana (which is awaiting a final investment decision), the tighter integration of its Crestwood and WTG acquisitions, and its expansion in the Permian Basin should drive its adjusted EBITDA and DCF growth
The Trump administration's focus on boosting domestic energy duction and relaxing regulations on pipeline operators could generate additional tailwinds for the industry, but higher tariffs on steel and other raw materials could also drive up its construction costs
From 2024 to 2027, analysts expect Energy Transfer's adjusted EBITDA to grow at CAGR as the macro environment stabilizes
Assuming it matches those estimates, continues to grow its adjusted EBITDA at a CAGR of 5% from 2027 to 2031, and still trades at 7. 5 times its forward adjusted EBITDA, its enterprise value could grow 11% to $141 billion by 2030
Therefore, Energy Transfer might not consistently beat the S&P 500 -- which has generated an average annual return of 10% since its inception -- on its own over the next five years
But if it continues to grow its fits and raise its distributions, it could still der a higher total return than the S&P 500
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.
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