Energy Transfer Continues to Enhance Its Portfolio and Ability to Pay Dividends

Energy Transfer (NYSE: ET) is coming off a big year. It closed two notable acquisitions last year, buying Lotus Midstream for about $1.5 billion and acquiring fellow master limited partnership (MLP) Crestwood Equity Partners in a $7.1 billion deal.

Those needle-moving deals, along with organic expansion projects and healthy market conditions, position the midstream giant to grow its earnings by more than 10% this year. That will give it plenty of fuel to deliver on its plan to increase its nearly 8%-yielding distribution by about 3% to 5% this year.

The MLP has continued to enhance its growth profile this year. It recently closed another accretive acquisition. On top of that, it recently secured an accretive joint venture (JV) . These transactions will improve its portfolio and the ability to grow its high-yielding distribution in the future.

Closing another needle-moving deal

In late May, Energy Transfer agreed to acquire WTG Midstream in a nearly $3.3 billion transaction. The company closed that deal earlier this month. It paid almost $2.3 billion in cash and issued 50.8 million new common units to the sellers .

Strategically, WTG Midstream will add 6,000 miles of complimentary gas-gathering pipelines that extend Energy Transfer's network in the Midland Basin side of the Permian Basin. It also added eight operating natural gas processing plants and two more under construction. The company expects the growing supply of natural gas and natural gas liquids from these assets to enhance its system.

On the financial side, the deal will provide the pipeline company with incremental revenue from gathering and processing activities and downstream transportation and fractionation fees. Energy Transfer expects the acquisition will add $0.04 per unit to its distributable cash flow next year. It anticipates the accretion to increase to $0.07 per unit in 2027 as current expansion projects come online and it captures the expected acquisition synergies.

That deal alone could fuel Energy Transfer's distribution growth plan for several years. The MLP expects to increase its payout at a $0.0025 per-unit quarterly rate each year ($0.01 annualized), which is around 3% to 5% annually.

Joining forces with its affiliate

Energy Transfer recently revealed another accretive transaction. It's forming a JV with affiliated MLP Sunoco LP (NYSE: SUN) to combine their crude oil and produced water-gathering assets in the Permian Basin.

The new JV will operate 5,000 miles of crude oil and water-gathering pipelines in the Permian Basin. It will also have more than 11 million barrels of crude oil storage capacity. Energy Transfer will own 67.5% of the joint venture, which it will operate, while Sunoco LP will hold the remaining 32.5% interest.

Combining these assets will reduce costs and provide potential commercial synergies. That drives the partners' view that the deal will be immediately accretive to their distributable cash flow per unit.

That transaction comes on the heels of Sunoco's needle-moving acquisition of NuStar Energy. The company paid $7.3 billion for the fellow MLP, which increased its stability and diversification, strengthened its financial foundation, and enhanced its growth profile.

NuStar added over 9,500 miles of pipelines and 63 terminal and storage facilities to Sunoco's portfolio, which focused primarily on distributing motor fuel to convenience stores. It's now working with its parent to enhance some of those newly acquired midstream assets. The additional accretion from the joint venture adds to the already strong growth Sunoco expected from the NuStar deal of more than 10% per unit by the third year following the deal's closing.

Enhancing an already excellent profile

Energy Transfer entered 2024 in its best financial position in years, despite making two sizable acquisitions last year. That gave it the financial flexibility to continue enhancing its portfolio and growth profile this year via the WTG Midstream deal and Sunoco JV. It now has even more fuel to grow its high-yielding distribution in the coming years. That visible growth makes the MLP a very enticing option for those seeking a high-yielding, steadily rising income stream.

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 .