Could Buying Energy Transfer Stock Today Set You Up for Life?

With the market fluctuating and still generally under pressure, now is a great time to look for stocks that you can buy and hold for a very long time. One name at the top of my list would be Energy Transfer (NYSE: ET).

The company is one of the largest energy midstream operators in the country. This master limited partnership (MLP) has a vast integrated system of interstate, intrastate, and gathering pipelines, as well as storage; processing plants; and fractionators, which separate natural gas liquids (NGLs) into their individual components. It handles a variety of fossil fuels, including natural gas; NGLs; crude oil; and refined products, such as gasoline, diesel, and jet fuel.

A strong business and growing opportunities

The company's vast network of midstream assets allows it to be one of the biggest energy arbitrageurs in the U.S., being able to benefit from geographic, seasonal, and product spreads. For example, it can store natural gas until winter, when prices are higher, or transport it from lower-priced regions to areas in need of more power, where prices are higher.

It has NGL and refined-product export facilities where it can ship these products overseas when demand and spreads are high. It's also able to take ethane out of the natural gas stream when prices are high.

Energy Transfer also has one of the largest natural gas pipeline systems in the country and a strong presence in and around the Permian Basin, which makes it well positioned to benefit from growing natural gas and electricity demand. Some of this is being driven by artificial intelligence (AI) data centers, which consume a lot of power.

The Permian has some of the best oil drilling economics in the U.S., and it produces a lot of associated natural gas. Natural gas production is not a focus for companies drilling in the basin, but it must be transported away given restrictions on flaring (burning off the gas). This leads to low prices, which at points have even been negative over the past year at the nearby Waha Hub.

Image source: Getty Images

The combination of its vast pipeline network and access to cheap natural gas makes Energy Transfer an attractive partner to bring the gas to power companies and data centers that are seeing increased power demands from AI. It said it has received inquiries from more than 60 power plants regarding new connections in 13 states and requests from 15 plants it also serves.

It also has had discussions with many data centers and has signed its first agreement with data center developer CloudBurst to supply a center in Texas that it is building with natural gas.

With strong demand for natural gas and a presidential administration that is more supportive of fossil fuels, Energy Transfer is seeing increased opportunities for growth projects. As a result, the company has increased its growth-project capital expenditures (capex) from $3 billion last year to $5 billion this year.

Much of this will center around the Permian, including its Hugh Brinson Pipeline Project, which will take natural gas away from the Permian to markets within Texas to help support data center and AI growth.

The company also continues to look to make progress on its long-awaited Lake Charles LNG facility. It recently signed a deal with MidOcean in which that LNG company would fund 30% of the construction costs in exchange for 30% of the LNG production. Shell recently forecast that LNG demand will rise by 60% by 2040, driven by demand from Asia, where natural gas prices are much higher. Energy Transfer expects to make a final investment decision on the Lake Charles project later this year.

A high yield and growing distribution

Energy Transfer's stock price is very unlikely to see any type of parabolic gains in the coming years. It's an already large company in a capital-intensive business. However, what the stock can do is set you up with a very attractive and growing income stream in the years ahead.

The stock currently has an 8.3% forward yield that is well covered by its distributable cash flow (DCF), which is operating cash flow minus maintenance capex. The company's balance sheet is also in better shape than in the past, with less leverage. With the growth projects in front of it, it is looking to grow its distribution by 3% to 5%.

Trading at a forward enterprise-value-to-earnings multiple of 7.7 before interest, taxes, depreciation, and amortization, the stock is cheap both on a relative basis to other midstream companies as well as from a historical perspective. In the past, midstream MLPs have often commanded multiples of 12 or more.

Meanwhile, the great thing about owning a stock like Energy Transfer over the long term is that it will produce a significant "personal yield" over time. This is the stock's dividend yield based on your cost basis.

For example, if it grows its distribution by 4% a year for the next 15 years, the yield on your original investment today would be approximately 14.7%. That's a nice income source for retirement, and I also expect some solid price appreciation as well.

So Energy Transfer might not set you up for life, but it can help provide an income stream for you in retirement.

Should you invest $1,000 in Energy Transfer right now?

Before you buy stock in Energy Transfer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Energy Transfer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $502,231!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $678,552!*

Now, it’s worth noting Stock Advisor’s total average return is 800% — a market-crushing outperformance compared to 156% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 14, 2025

Geoffrey Seiler has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.