Key Points
Oil prices rallied last month.
Energy Transfer announced a strong outlook for 2026.
The company also continues to hike its high-yielding distribution.
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Energy Transfer (NYSE: ET) burst out of the gate in early 2026, with its unit price surging 11.9% in January. That significantly outperformed the S&P 500, which gained 1.4% last month.
The master limited partnership (MLP) got a boost from crude prices last month, which lifted the entire oil sector. However, that wasn't the only catalyst fueling the pipeline stock in January.
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An oil-fueled boost
Oil prices rallied sharply last month. WTI, the main U.S. oil price benchmark, surged 14%. That was its first monthly gain in six months. Oil prices rallied due to potential supply issues in Venezuela and Iran.
On the one hand, oil prices have less of an impact on Energy Transfer because fees underpin about 90% of its earnings. However, 5% to 10% of the midstream company's earnings have some commodity price exposure. As a result, higher oil prices will lift those earnings. Additionally, rising crude prices tend to incentivize energy companies to increase production, boosting the MLP's volumes and future growth prospects.
Optimism about what's ahead
Rising crude oil prices weren't the only factor fueling Energy Transfer's rally last month. The MLP also announced its 2026 outlook in early January.
The company expects to generate adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of between $17.3 billion and $17.7 billion this year. That implies growth rates of 7.5% to 10% from last year's level of $16.1 billion, a meaningful acceleration from its less than 4% growth rate in 2025. The MLP expects to benefit from the ramp-up or completion of several expansion projects, including the Nederland Flexport NGL expansion, Hugh Brinson Pipeline Phase I, and gas pipeline projects serving data centers in Texas.
Energy Transfer has more growth coming down the pipeline. It expects to invest between $5 billion and $5.5 billion in growth capital projects this year, primarily to enhance its gas pipeline network. That's up from $4.6 billion last year. The company is pursuing additional opportunities to support growing power demand from AI data centers.
This visible growth supports the MLP's plans to continue increasing its high-yielding cash distribution. Energy Transfer raised its payout again last month and has increased it by more than 3% over the past year. That's right in line with its long-term target of delivering 3% to 5% annual distribution growth.
High-octane total return potential
Energy Transfer's growth rate is accelerating as it completes its large, growing pipeline of organic expansion projects. Its growing earnings should give the MLP plenty of fuel to continue increasing its high-yielding distribution. That positions the company to continue producing high-octane total returns in the coming years even after last month's rally.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
