With a year-to-date (YTD) of over 23%, Energy Transfer (ET) is outperforming the S&P 500 Index ($SPX) by a big margin this year. In my previous article, I noted that ET could deliver decent returns in the medium term and discussed the possibility of a rally in Q4 2025. The stock has since risen over 20% even as the gains have come this year instead of in the final quarter of 2025 as I had expected. Nonetheless, with ET stock now up significantly from its 2025 lows, let’s explore whether it is still a buy or if it's now too late to enter this midstream energy company.
www.barchart.comET Has a Healthy Dividend Yield
To begin with, let’s look at ET’s dividend, as it is among the key metrics to watch for midstream companies that are known to pay fat dividends. The company increased its quarterly dividend by 3% to $0.3350 per share in January. The increase was towards the lower end of the 3%-5% annual dividend growth that ET is targeting. Currently, Energy Transfer offers a dividend yield of 6.6%, among the highest in the midstream energy space.
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However, it is important to note that Energy Transfer was forced to cut its distribution by half in 2020 amid the Covid-19 pandemic. While several companies either cut or suspended their dividends during the pandemic, some of ET’s peers, specifically Enterprise Products (EPD), increased theirs. That said, ET has since gradually raised its dividend, and the current payout is higher than what it was before the cut.
Energy Transfer Raised Its 2026 Guidance
During its Q1 2026 earnings, ET raised its annual adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) guidance to between $18.2 billion and $18.6 billion, which the company attributed to early realization of its optimization target and expectation of strong growth in the remaining part of the year. ET said its guidance assumed “base business with minimal optimization” while stressing that in five of the last eight years it has seen “significant upside” to its base business. Management is optimistic about achieving or exceeding the top end of its 2026 guidance.
The incremental growth has also required increased investments, and during the Q1 call, ET raised its capex budget to between $5.5 billion and $5.9 billion versus the previous guidance of $5 billion-$5.5 billion as it added new growth projects to its pipeline.
Structural Tailwinds for ET Stock
There are some structural tailwinds for the U.S. midstream sector. For instance, the Trump administration is looking to push defense and energy exports in a bid to bridge the trade deficit with trading partners with whom the U.S. has a large trade deficit. India could be a case in point here, and the energy-starved country has been looking to diversify its energy sources and has increased energy purchases from the U.S.
The ongoing (and seemingly unending) war in the Middle East, specifically the closure of the Strait of Hormuz, should also prompt more countries to diversify their energy sourcing and potentially consider U.S. energy companies as reliable partners. No wonder the first question during Energy Transfer’s Q1 earnings call was on the same topic, to which the management responded by saying that it is “excited” about the opportunity. The company also noted that while the record export volumes that it was then witnessing would come down, it is optimistic about them settling above the pre-crisis levels. Specifically, the Nederland Flexport expansion project, which is completed and now ramping up operations, would enhance Energy Transfer’s export capabilities.
The expected increase in U.S. electricity demand amid the artificial intelligence (AI) pivot is another tailwind for midstream companies. While a lot of incremental electricity demand from sprawling data centers would be met with renewable and nuclear energy, natural gas would remain a key component. Energy Transfer has signed long-term supply agreements with names like CloudBurst data centers, Fermi America, and Oracle (ORCL) to capitalize on the data center opportunity. I believe Energy Transfer has several growth drivers in its arsenal, which should bolster its earnings and, by extension, the dividends in coming years.
www.barchart.comTalking of valuations, ET stock trades at a forward enterprise value-to-EBITDA multiple of 8.67x, which, while being slightly higher than the average multiples over the last five years, does not look frothy considering the current growth profile is a lot more promising than what it was historically.
Moreover, Energy Transfer has addressed some of the previous corporate governance issues, and its balance sheet is now in much better shape, which would warrant a slightly higher multiple. Overall, while ET is not as tempting a buy as it was when I last covered the stock, it is still a reasonable buy at these levels.
On the date of publication, Mohit Oberoi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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