Midstream energy stocks are a great way for income-seeking investors to get a piece of the AI boom and accelerating demand for electricity. And few, if any, are as well positioned as Energy Transfer LP (ET), notes Roger Conrad, managing partner at Capitalist Times.
The diversified midstream company yields north of 7% and is raising its dividend on a quarterly basis at an annualized rate between 3% and 5%. That dividend is also a tax-advantaged return of capital.
Energy Transfer is coming off a solid Q1 in which its distributable cash flow covered its payout by better than a 2-to-1 margin and it covered capital spending with operating cash flow. Overall interstate natural gas transportation volumes hit a new record. Crude oil throughput expanded by 10%, NGL transportation 4%, NGLs/refined products 4%, NGL exports 5%, and midstream gathered volumes 2%.
Energy Transfer LP (ET)
That growth is being driven in large part by low-cost acquisitions over the past few years, and more recently by using the stock of its Sunoco LP (SUN) affiliate. Energy Transfer’s EBITDA from Sunoco grew by 89.3% in Q1. It will take another big jump when Sunoco closes the $9.1 billion acquisition of Canadian fuels distributor Parkland Fuels (PKIUF) in second half of 2025.
Energy Transfer is a player in the global LNG trade, with its Lake Charles LNG export facility almost fully contracted and set to start up later in the decade. But management is talking more and more about its opportunity to ship gas to data centers, especially in Texas.
The company has a long-term agreement to supply the CrowdBurst facilities in central Texas. It has also entered the generation business, building a fleet of eight 10 megawatt capacity natural gas-powered facilities in Texas.
Renewable energy — particularly solar plus storage — is currently Big Tech’s favored way to feed its electricity appetite. Facilities can be deployed at scale within 12 to 18 months of the planning stage. And the cost is a fraction of other sources, with or without tax credits.
When you build renewables at scale, however, you’ve got to have natural gas. And adding meaningful, new nuclear capacity is a decade away at best. That means Big Tech is going to need a lot more gas. And Energy Transfer is well positioned to transport it to them.
