Could Buying Energy Transfer Today Set You Up for Life?

Energy Transfer (NYSE: ET) is one of the country's largest energy midstream companies. The master limited partnership's (MLP) diversified operations provide it with a substantial amount of steady cash flow. That enables it to pay a monster cash distribution (a 7.6% current yield) and invest in expanding its operations.

Here's a look at whether an investment in the leading pipeline stock could set you up for life.

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A rock-solid income stream

Energy Transfer is a cash-flow-producing machine. It earns fees as volumes flow through its vast array of pipelines, processing plants, and export terminals (90% of its earnings come from long-term fee-based contracts). The company produced nearly $6.2 billion of distributable cash flow during the first nine months of last year. It paid out almost $3.4 billion to investors and retained the rest to invest in expansion projects.

The stability of the company's cash flows, along with its lower dividend payout ratio, provides a rock-solid foundation for its high-yielding distribution. The company further fortifies its payout with a strong balance sheet. Its leverage ratio is within its 4.0-4.5 times target range these days. As a result, Energy Transfer is in the strongest financial position in its history.

Visible growth prospects

The MLP's strong financial profile also allows it to invest in growing its operations. Energy Transfer currently plans to invest between $5 billion and $5.5 billion into growth capital projects this year. That's an increase from $4.6 billion last year. This growth capital spending is supporting the construction of a long list of capital projects, including the $2.7 billion Hugh Brinson Pipeline (with late 2026 and early 2027 in-service dates) and the $5.6 billion Transwestern Pipeline expansion project (fourth-quarter 2029).

Energy Transfer has an abundance of expansion projects secured through the end of the decade. It's pursuing additional growth opportunities to support rising energy demand, notably to supply natural gas to power plants and AI data centers. Securing additional growth capital projects would further enhance and extend its long-term growth outlook.

Meanwhile, robust demand for gas is making its existing assets more valuable. Energy Transfer can sign new gas transportation contracts at higher rates as legacy agreements expire, driving incremental revenue growth.

These catalysts should fuel strong earnings growth for the MLP in the coming years. Energy Transfer expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase by 6% to 8% this year, fueled by the completion of several organic expansion projects. That's an acceleration from the roughly 4% earnings growth rate it delivered in 2025. This earnings growth supports the MLP's plan to increase its high-yielding distribution by 3% to 5% per year.

Life-changing returns?

At a minimum, Energy Transfer should provide investors with an average annual return of more than 7.5% from distribution income alone. While that's a solid base return, it's not life-changing.

However, the MLP -- which sends investors a Schedule K-1 Federal tax form each year -- will likely also provide some value appreciation as it grows its earnings. Conservatively, it should grow its earnings per share by 3% to 5% per year to support its current distribution growth target. Add the income yield to the earnings growth rate, and Energy Transfer's total annual returns could be in the range of 10.5% to 12.5%. That's not an overly ambitious return forecast. Energy Transfer has delivered an annualized total return of 13.3% over its roughly two decades as a public company.

Depending on how much you have to invest, Energy Transfer could set you up for life if it could generate returns in that range. For example, a $30,000 investment in Energy Transfer today would be worth over $1 million in 30 years if it delivered a 12.5% average annualized total return (and you reinvested your distribution payments). That could certainly set you up for life. However, if you invested a smaller amount and earned only a 10.5% average annual return, it would take much longer to reach a life-changing level.

The bottom line is that buying Energy Transfer today could set you up for life. However, you'd need to make a sizable up-front investment, and the company would need to deliver strong total returns for decades to create life-changing wealth, which is no guarantee.

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