Here's Why Energy Transfer Stock Is a Buy Before Aug. 6

Key Points

• Energy Transfer will report its second-quarter financial results on Wednesday.

• The MLP could also reveal that it has secured additional expansion projects.

• This week is the last time to buy Energy Transfer to receive its next distribution payment.

• 10 stocks we like better than Energy Transfer ›

This is a big week for Energy Transfer (NYSE: ET). The energy midstream giant reports its second-quarter financial results this week. Additionally, it will pay its next quarterly distribution to investors who hold shares by the end of the week.

Given the timing of these pending catalysts, investors who are thinking about buying Energy Transfer should consider doing so before the market closes on Aug. 6. Here's why that's a noteworthy date.

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Earnings are coming

Energy Transfer announced that it plans to release its second-quarter financial results after the market closes on Wednesday, Aug. 6. That report could serve as a catalyst for the master limited partnership's (MLP) unit price, which has declined by about 10% this year. A strong second-quarter report could provide a jolt that reinvigorates the company's unit price.

The midstream giant is coming off a solid quarter. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) rose nearly 6% in the first quarter to $4.1 billion, though its distributable cash flow slipped 2% to $2.3 billion. The company delivered record interstate natural gas transportation volumes (up 3%) and strong crude oil volume growth (10% increase). It benefited from healthy market conditions and the impact of last year's acquisition of WTG Midstream.

Its second-quarter financial results should start seeing the initial benefits of a major wave of organic expansion projects. The company has completed the initial phases of some Permian processing plant upgrades, its Sabina 2 Pipeline conversion, and ethane and propane services at its Nederland Flexport NGL Expansion project. It's also completing several natural gas-fired electric generation facilities to support its operations in Texas. These projects should have started supplying the MLP with incremental earnings and cash flow in the second quarter, potentially accelerating its growth rate.

New growth catalysts coming?

Another potential upside catalyst that could emerge with Energy Transfer's earnings report is the unveiling of new growth drivers. For example, the MLP has several proposed expansion projects that are on the cusp of reaching a final investment decision (FID).

The biggest is its long-delayed Lake Charles LNG project. The company already announced two major new developments related to that project over the past few months. Energy Transfer secured several new customer contracts supporting the project, including an expansion of its agreement with Chevron.

Additionally, the MLP secured MidOcean Energy as a joint venture partner to help fund the project. Announcing that it has finally made an FID on this project could provide the MLP's unit price with a big boost.

Energy Transfer is also working on several potential projects to supply natural gas to artificial intelligence (AI) data centers, including a previously proposed project for Cloudburst's AI data center. Formally securing that project and others linked to AI data centers could also be a major catalyst for the unit price.

The last chance to lock in the next distribution payment

This week is also an important one for income-focused investors. Energy Transfer will pay its next quarterly distribution on Aug. 19. However, investors need to own units of the MLP by the time the market closes on Friday, Aug. 8. If you buy units after that date, you won't receive your first distribution payment until mid-November, when the company will likely make its third-quarter payment.

Energy Transfer's upcoming quarterly payment will be $0.33 per unit ($1.32 annualized). This rate gives it a distribution yield of 7.4% at its recent unit price. The payment is up from $0.3275 last quarter ($1.31 annualized) and a more than 3% increase compared to its payment in the second quarter of last year. The MLP has been bumping up its payment each quarter, aiming to raise it by 3% to 5% annually.

The energy company's high-yielding and steadily rising distribution makes it a great investment option for those seeking to generate passive income. However, it's worth noting that the MLP sends its investors a Schedule K-1 federal tax form each year, which can complicate your taxes. It's essential to understand the benefits and drawbacks of investing in MLPs, such as Energy Transfer, before purchasing units for your portfolio.

A big week for Energy Transfer

Investors who are thinking about buying units of Energy Transfer should consider making the trade before the market closes on Aug. 6. That way, they would hold shares before its upcoming earnings report and distribution payment.

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Matt DiLallo has positions in Chevron and Energy Transfer. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.