Hook - Thesis
Energy Transfer (ET) is my top MLP pick for 2026 and beyond. At the 01/14/2026 price of roughly $17.45, the partnership yields about 7.6% based on the most recent quarterly cash distribution of $0.3325 (declared 10/28/2025; payable 11/19/2025). That yield is supported by consistent operating cash flow - the company generated roughly $2.6B of operating cash in Q3 2025 and between $2.5B and $3.0B across earlier 2025 quarters - and management is guiding growth projects that should improve EBITDA next year.
Put simply: if you want income and you are willing to own a big, diversified midstream footprint with some growth optionality, ET is a high-conviction trade. The path to upside is cash-distribution stability plus multiple expansion if guidance and project execution (e.g., Permian and LNG-related projects) drive EBITDA growth. The path to downside is macro-driven declines in throughput or a material misstep on leverage or project execution. I frame this as a buy with a disciplined stop and explicit profit targets.
Business in plain terms - why the market should care
Energy Transfer is a fully integrated midstream operator handling natural gas, NGLs, crude oil, and refined products from wellhead gathering and processing through to demand centers. Its scale is large: assets of $129.331B and long-term debt of $63.10B as of the quarter ended 09/30/2025. The company controls downstream brands (Sunoco) and compression businesses through its general partner relationships, giving it commercial optionality across energy flows concentrated in Texas and the Midcontinent - the geography that matters most for Permian volumes and U.S. gas movements.
The market should care for three pragmatic reasons:
- Cash generation: Operating cash flow has been consistently robust in 2025 - about $2.9B in Q1, $2.76B in Q2, and $2.57B in Q3. That cadence implies a run-rate in the high single-digit billions annually and supports distributions and internally funded growth.
- Distribution yield and trend: The quarterly cash distribution has ticked up gradually - for example, quarterly payouts moved from about $0.3125 in late 2023 to $0.3325 in late 2025. At current price levels that is an attractive yield and a primary reason income investors will own the units.
- Visible growth projects: Management commentary and recent media coverage indicate 2026 guidance and multi-billion dollar growth projects (Permian expansions, LNG-linked projects) that can lift EBITDA if execution continues to track plan. Those are classic value drivers for midstream firm valuation re-rates.
Supporting numbers and trends (selected)
- Most recent quarter (Q3 2025 ended 09/30/2025): Revenues $19.954B; Net income $1.292B; Operating cash flow $2.572B; Assets $129.331B; Long-term debt $63.100B; Equity $45.344B.
- Earlier 2025 quarters show similar scale: Q2 2025 revenues $19.242B, net income $1.458B, operating cash flow $2.762B; Q1 2025 revenues $21.020B, operating cash flow $2.917B. The operating cash flow profile across those three quarters is consistently strong.
- Quarterly cash distribution schedule: most recent declared cash distribution was $0.3325 (declaration 10/28/2025; ex-dividend 11/07/2025; pay 11/19/2025). Annualizing the most recent run implies roughly $1.33/year in cash distributions, which divided by a unit price of ~$17.45 equals a yield near 7.6%.
Valuation framing
The dataset does not include a market capitalization figure, so we avoid a precise market-cap-to-EBITDA multiple. Valuation context should therefore be pragmatic: ET is priced like a yield-oriented midstream with elevated leverage by comparison to investment-grade energy firms but with substantial asset backing. Consider these pieces:
- Yield-first investors are paying for distribution stability and upside from project execution. At ~7.6% yield, investors are demanding a premium yield vs. investment-grade dividend names, reflecting leverage and commodity sensitivity.
- Operating cash flow across 2025 (quarterly runs of ~2.6-2.9B) suggests mid-to-high single-digit billions of annual free cash flow capacity before financing items, which supports the distribution and growth capex.
- Debt is meaningful: long-term debt of $63.1B (09/30/2025). The market is pricing that leverage into yield; valuation improvement requires either durable EBITDA growth or meaningful debt paydown/credit metric improvement.
Qualitatively, ET trades as an attractive income vehicle when you believe in (1) stable US gas/NGL flows, (2) continued demand from industrials and data centers, and (3) management's ability to execute growth projects without materially stretching leverage. If those hold, multiple expansion and a higher distribution premium are plausible.
Catalysts (2-5)
- 2026 guidance and project updates - management commentary and formal guidance (announced early January 2026) that show EBITDA growth and strong project bookings will push sentiment.
- Permian throughput ramps - incremental volumes from Permian expansions will drive fee-based cash flows with good incremental margins.
- LNG / Lake Charles-linked projects - successful progress or FID milestones tied to LNG demand would add strategic optionality and justify a higher multiple.
- Distribution cadence and any increase - any evidence management keeps increasing distributions modestly while maintaining coverage will buoy the yield story.
Actionable trade plan
Trade direction: Long (income and total-return bias). Time horizon: Long-term (position) with medium-term swing targets built in.
Entry: Buy into a band between $17.00 - $17.60 (current prints ~ $17.45 as of 01/14/2026).
Initial Stop: $15.20 (roughly 12-13% below entry band; protects against a deeper reassessment of distribution safety or a macro-driven throughput shock).
Targets: Target 1: $19.00 (near-term resistance / mean-reversion to recent $19-20 range).
Target 2: $22.00 (medium-term if guidance and execution accelerate EBITDA).
Target 3: $26.00 (longer-term upside if leverage declines meaningfully and multiple expands).
Position sizing: Limit exposure to a small-to-moderate percentage of portfolio income allocation; treat ET as a high-yield, higher-risk income sleeve rather than core equity exposure.
Risks and counterarguments (balanced)
- Commodity and throughput risk: Midstream cash flows are ultimately linked to volumes. A sustained decline in U.S. gas production or a structural drop in takeaway demand would reduce fee-based cash and pressure distributions.
- Leverage and refinancing risk: Long-term debt was $63.1B at 09/30/2025. If interest rates spike or capital markets tighten, refinancing could pressure distributable cash flow or force asset sales. That is the primary financial downside case.
- Project execution risk: Growth projects (Permian, LNG-related builds) carry construction, permitting, and cost-overrun risk. Failure to deliver on schedule would delay EBITDA accretion and put pressure on sentiment.
- Distribution cut risk: Although coverage looks reasonable versus operating cash flows, a surprise cut would re-price the units quickly and test the stop. Owning at this yield implies accepting distribution risk as compensation.
- Counterargument: The market may be correctly pricing in structural secular risks - for example, slower long-term gas demand if renewables or economics shift - making ET a poor long-term capital-appreciation play even if income holds. If you are bearish on natural gas demand or expect aggressive deleveraging to be unlikely, a high yield alone is not sufficient reason to own the name.
Conclusion and what would change my mind
I recommend a buy in the $17.00 - $17.60 band for income-seeking investors comfortable with midstream balance-sheet risk and commodity exposure. The view is predicated on: continued operating cash flow around the ~2.5-3.0B quarterly range seen in 2025, successful execution on 2026 growth projects, and no material distribution cut. The trade is income-first with upside optionality if management delivers on guidance.
I would change my mind if any of the following occur: (1) operating cash flow drops below ~1.5B quarterly on a sustained basis, (2) management announces a significant distribution reduction or an equity issuance that meaningfully dilutes unitholders, (3) the company signals material cost overruns on major projects that blow out returns, or (4) credit metrics deteriorate such that refinancing costs spike. Conversely, if management reports accelerating, fee-based EBITDA and demonstrates a credible path to reducing net leverage, I would upgrade the target path and increase conviction.
Disclosure: This is not financial advice. The plan above is an actionable trade idea based on available public disclosures and recent operating trends. Size positions to match your risk tolerance and tax situation.