Can ET Stock Build a Strong Income Story on Distribution Growth?

Energy Transfer LP ET stands out as a compelling income-focused investment, highlighted by an increase in its quarterly cash distribution over the past five years. The firm has raised its quarterly payout 16 times, emphasizing the strong financial performance and capital discipline. This distribution growth reflects a sustained improvement in distributable cash flow and a clear commitment to rewarding unitholders, positioning Energy Transfer as one of the strongest income generators in the midstream space.

Energy Transfer operates a diversified midstream platform, with assets across crude oil, NGLs, refined products and natural gas pipelines, along with storage and processing facilities. The firm has a strong presence in the Permian Basin. Energy Transfer also operates the Dakota Access Pipeline and owns interests in export terminals, expanding its scale and creating incremental cash flow opportunities.

The firm has shifted toward a more disciplined capital allocation strategy, prioritizing balance sheet strength, organic growth projects and excess cash returns. By moderating capital spending and reducing leverage, the partnership has enhanced financial flexibility while sustaining strong distribution coverage.

The firm, with a proven ability to rapidly grow cash payouts, a resilient business model and improving financial metrics, offers an attractive opportunity for investors seeking high income supported by durable cash flows and long-term value creation in the oil and gas midstream space.

Midstream Firms Drive Income Through Rising Distributions

Midstream firms are increasingly boosting cash distributions, supported by stable, fee-based contracts, disciplined capital spending and improving balance sheets. Strong free cash flow generation enables higher cash distribution payouts, making the sector attractive to income-focused investors seeking durability and long-term returns.

Enterprise Products Partners EPD and Plains All American Pipeline PAA are two midstream firms that consistently boost unitholder value through regular cash distributions. EPD and PAA have raised cash distributions by nine and five times, respectively, in the past five years. Both firms largely depend on fee-based contracts that support steady cash flows and reduce exposure to commodity price swings.

ET’s Units Are Trading at a Discount

Energy Transfer units are somewhat inexpensive relative to the industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) is 9.3X compared with the industry average of 10.91X. This indicates that the firm is presently undervalued compared with its industry.

Price Performance

Units of Energy Transfer have rallied 10.3% in the past month compared with the Zacks Oil and Gas - Production Pipeline - MLB industry’s growth of 6.4%.

ET’s Estimates Moving North

The Zacks Consensus Estimate for Energy Transfer’s 2026 earnings per unit indicates year-over-year growth of 16.99%. ET’s long-term (three to five years) earnings growth is pegged at 12.45%.

ET’s Zacks Rank

Energy Transfer currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

 

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This article originally published on Zacks Investment Research (zacks.com).

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