Why 2025 Could Be Brighter for this MLP Energy Stock After Its 40% Gain?

2023年表现最好的资产会是什么?
Published on: Dec 16, 2024
Author: Caroline Kong

As a midstream energy giant, 2024 has been a stellar year for Energy Transfer (ET), a MLP (master limited partnership) stock, whose shares are up nearly 40% this year, compared with a 25% gain in the S&P 500.

While earnings growth, including acquisition-driven growth, and optimism about future growth prospects driving the share price, the energy stock still maintains a dividend yield of nearly 7%, well above the 1.2% yield of the S&P 500. What’s more, 2025 looks even more promising.

Energy Transfer is on track to post $15.3 billion to $15.5 billion in adjusted earnings before interest, tax, depreciation and amortization (EBITDA) this year, up 12 percent from the 2023 median. The company’s results in 2024 benefited from three acquisitions, including Lotus Midstream and Crestwood Equity Partners last year, and WTG Midstream in July. The MLP also completed several organic capital projects.

It is currently growing its high-yield distribution at a rate of $0.01 per unit per year, or more than 3 percent per year. At the same time, several organic expansion projects have just entered commercial services or will enter commercial services in the next year. These projects will add additional sources of cash flow when they become operational.

More Potential Catalysts On the Way

These upcoming projects, along with the acquisition of WTG Midstream, will enable Energy Transfer to steadily increase adjusted EBITDA in 2025.

And there are several other potential upside catalysts which could provide more fuel for upside next year, including the possibility of another accretive acquisition. Energy Transfer is a consolidator in the midstream sector and this trend is likely to continue through 2025. The company has a strong balance sheet and sufficient financial flexibility to be able to close a deal when the right opportunity arises.

At the same time, it may continue to advance additional organic expansion projects. The company recently approved the $2.7 billion Hugh Brinson pipeline project, which will go into commercial operation in 2026. Energy Transfer has several other projects in the pipeline, including Blue Marlin, Lake Charles LNG, and carbon capture and storage.

The Lake Charles LNG project is now very close to final approval after numerous delays over the years. At the same time, AI could enable several new gas-related infrastructure projects for Energy Transfer in the coming years.

The growing cash flow could allow it to start returning more money to investors. Energy Transfer is currently increasing its distribution by $0.01 per unit per year, which is at the low end of its 3 percent to 5 percent annual target range. Given the growth from the WTG Midstream transaction, the company can begin to use some of the excess free cash flow to buy back its units. Despite the rebound in share prices this year, valuations remain attractive.

All in all, Energy Transfer remains strong heading into 2025. By securing additional expansion projects and continuing its integration strategy, the company could also start returning more cash to investors next year. This means that for Energy Transfer and their investors, 2025 is another great year to look forward to, on top of the 40% return in 2024.

Clean Energy Dividend Yielding Stocks Natural Gas Oil & Gas