The Optimal Pipeline Corporation Shares to Allocate $2,000 Investment currently
Pipeline master limited partnerships (MLPs) like Energy Transfer have been on an impressive streak recently. The Alerian MLP Infrastructure Index, tracking the MLP sector, yielded a whopping 26.7% return in 2024 and boasts a nearly 10% increase as of now.
Energy Transfer is one of my favorites in the sector, drawing interest with its robust yields, strong distribution payments, and attractive valuations. With rising natural gas demand due to artificial intelligence and exports, Energy Transfer finds itself in a golden position, thanks to its access to low-cost natural gas in the Permian Basin.
Boosting Growth Opportunities
Energy Transfer's robust and expansive midstream system enables it to transport, store, and process various hydrocarbons. Sitting pretty in the Permian Basin, Energy Transfer is poised to take advantage of the region's booming natural gas supply and lower production costs. The company plans to substantially increase its annual growth capital expenditures (capex) from $3 billion last year to $5 billion in 2025.
The proposed expansion includes investments in new projects, like the Hugh Brinson Pipeline, intended to transport residue natural gas from the Permian to Texas's growing power companies and data centers. Data centers and power plants have shown strong interest, with Energy Transfer having more than 60 and 15 connect requests respectively.
These ambitious projects are expected to deliver mid-teens return on investments. While most projects won't complete until 2026 or 2027, the increased capex will significantly boost Energy Transfer's earnings before interest, taxes, depreciation, and amortization (EBITDA) growth in those years.
A Stable and Growing Dividend
Energy Transfer has a robust and increasing dividend, with a 3.2% yield hike last quarter, amounting to $0.325 per unit. With a goal of growing its dividend between 3% to 5% per year, Energy Transfer is well-positioned to supply its investors with sustainable income.
The dividend is well-covered, as its distributable cash flow (DCF) is larger than its distribution payouts. For instance, Energy Transfer achieved 1.8 DCF coverage, generating $1.98 billion in DCF while paying out $1.12 billion in distributions in the last quarter. This positive trend continued, generating $8.36 billion in DCF and paying out $4.39 billion in distributions for the year.
An Inexpensive Attraction
Despite its strong financial performance and promising growth opportunities, Energy Transfer continues to trade at a relative and historical discount. The stock has a lowered enterprise value to EBITDA (EV/EBITDA) multiple of 8.5, according to 2025 analyst estimates, positioning itself at a favorable end of valuations in the group. This is a significant decrease compared to pre-pandemic times, when the stock often surpassed the 15 EV/EBITDA multiple level.
Conclusion
Encompassing growth opportunites, attractive yields, and a sound financial structure, Energy Transfer is an ideal stock for investors looking to make a commitment to the MLP sector. With its robust dividend income potential and price appreciation prospects, Energy Transfer is a solid option for investors seeking a stable and consistently growing income stream.
The Alerian MLP Index, which tracks the MLP sector, saw a remarkable 26.7% return in 2024 and a nearly 10% increase as of now, indicating positive trends in the sector. Energy Transfer, a favorite in the MLP sector, offers robust yields, strong distribution payments, and attractive valuations.
Energy Transfer's expansion plans, including investments in new projects like the Hugh Brinson Pipeline, aim to significantly boost its annual growth capital expenditures from $3 billion to $5 billion in 2025. These projects are expected to deliver mid-teens returns on investments.
Despite its strong performance and growth prospects, Energy Transfer's stock continues to trade at a relative and historical discount, with a lowered enterprise value to EBITDA (EV/EBITDA) multiple of 8.5 according to 2025 analyst estimates. This represents a significant decrease compared to pre-pandemic times.
Investors seeking a stable and consistently growing income stream may find Energy Transfer an appealing option, given its robust dividend income potential and price appreciation prospects in the MLP sector.
