Energy Transfer (ET, currently priced at US$17.21 with a 1.01% change today) has firmly established itself as a dividend favorite among investors, boasting a yield of over 8% and an ever – increasing distribution. Just last month, the company made an announcement that delighted shareholders, revealing a 3% hike in its distribution. This move pushed the annualized distribution to $1.31 per share. Typically, Energy Transfer incrementally raises its payout each quarter, and it has laid out plans to continue increasing the distribution by approximately 3% to 5% annually in the future.
The company’s distribution is well – supported by its distributable cash flow (DCF), which is calculated as operating cash flow minus maintenance capital expenditures (capex). In the first quarter, its DCF coverage ratio was a healthy 2 times, indicating that the DCF generated was double the amount paid out in distributions. With a significantly improved balance sheet, Energy Transfer is in a strong position to continue growing its distribution going forward.
Growth Initiatives in Full Swing
For midstream energy companies, growth hinges on investing in new projects that promise substantial returns. Energy Transfer is currently in an expansionary phase, eyeing numerous attractive opportunities. The company plans to allocate $5 billion to growth projects this year, a significant increase from the $3 billion it spent on growth capex in 2024.
Most of these projects are slated to come online in 2025 or 2026. Among them are several expansions of Permian processing plants and the Hugh Brinson Pipeline project. The Hugh Brinson Pipeline will transport natural gas from the Permian Basin, helping to meet the growing power demands in Texas. Energy Transfer anticipates mid – teens returns on these projects, which are expected to fuel growth in 2026 and 2027 as they reach full operation.
Progress on LNG and AI – related Projects
The company is also making headway with its Lake Charles, Louisiana, LNG facility. Energy Transfer expects to make a final decision on this long – awaited project by the end of the year. The liquified natural gas (LNG) market is experiencing robust growth, with Shell recently forecasting that LNG demand will surge by 60% by 2040. This large – scale project, which the company has been striving to launch for years, is now getting closer to fruition thanks to a different government administration, new partners, and potential customers being in place.
In addition, Energy Transfer is exploring opportunities in artificial intelligence (AI) data centers. In the previous quarter, it announced a deal with data center developer Cloudburst to supply natural gas to its newest data center project in Texas. The company has also revealed that it is in advanced discussions with several other facilities within its operational footprint to handle the supply, storage, and transportation of natural gas. These facilities include data centers, gas – fired power plants, and industrial and onshore manufacturing plants. What’s more, Energy Transfer noted that these projects require minimal capital and can generate revenue relatively quickly. The company has indicated that it expects to make some significant announcements regarding data centers in the next four to eight weeks and has identified Arizona as another potential area for data center growth that it could serve. Co – CEO Marshall McCrea expressed his enthusiasm for these opportunities during the earnings call, stating, “We just couldn’t be more excited about these opportunities we’re chasing.”
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