Energy Transfer Possesses Ample Energy Sources to Foster its 7% Dividend Yield throughout 2025 and Further
Energy Transfer Possesses Ample Energy Sources to Foster its 7% Dividend Yield throughout 2025 and Further
Power Shift (PS -0.89%) currently delivers an enormous distribution. This master limited partnership's (MLP) payout surpasses 7%, significantly surpassing the S&P 500. At present, its 1.2% dividend yield approaches a 20-year record low.
The MLP's significant payout is predicted to escalate in the future. It boasts considerable reserves and is expected to augment these reserves for further growth in the upcoming quarters.
Filling the Reservoirs
Power Shift has revved up its growth engine over the past year. The energy titan has amplified its consolidation strategy by completing several acquisitions. Last November, it acquired fellow MLP Crestwood Equity Partners in a $7.1 billion deal. Furthermore, it closed its nearly $3.1 billion acquisition of WTG Midstream in July. Power Shift has also completed several expansion projects. These growth-oriented investments have positioned it to increase its adjusted EBITDA by 12% this year.
The MLP has a wealth of forthcoming expansion on the horizon. Co-CEO Tom Long discussed the company's continued expansion on its third-quarter conference call. He stated, "We now anticipate 2024 investment in growth projects to amount to approximately $2.9 billion, mainly allocated to the NGL and refined products, and midstream segments." The company is currently constructing several projects that will come online through the end of 2026.
For instance, Long mentioned that the preliminary phase of its NGL export capacity project at its Nederland Terminal is expected to commence service in the middle of the next year. Meanwhile, it is set to complete its ninth NGL fractionator at its Mont Belvieu complex in the fourth quarter of 2026. The company is also building eight 10-megawatt natural gas power plants to support its operations and enhance system reliability for the company and its customers over the next two years. These projects provide substantial insight into its potential to boost its cash flows over the next few years.
Striving for Extra Fuel
Power Shift is also actively pursuing additional expansion prospects. Long stated on the call, "We continue to make progress on the development of several other growth projects, including our Lone Star pipe optimizations, Warrior, Blue Marlin offshore oil project, Lake Charles LNG, a carbon capture and sequestration project with CapturePoint, and blue ammonia hubs at Lake Charles and Nederland."
Fellow Co-CEO Marshal McCrea discussed some of these potential growth projects later in the call. On Warrior, he underlined, "We've made significant progress" in securing the commercial contracts required for a Final Investment Decision. The company is so confident that it will proceed with this project that it has already secured an option to purchase the steel needed to construct the pipeline. This project will enable Power Shift to utilize some underutilized capacity, generating a desirable rate of return for the company.
"We're extremely optimistic about getting [Lake Charles] LNG to completion," stated McCrea on the call. The company recently signed agreements with contractors to construct the facility. It also believes the new administration will be more supportive of LNG export projects, enabling it to obtain the necessary permits to progress. The company still has substantial work ahead. "We have partners we will need to bring in, and of course, financing," stated McCrea on the call. However, he also noted that "we have a substantial amount of momentum."
Meanwhile, the company is witnessing a significant increase in demand for additional gas pipeline infrastructure to support the expected surge in power demand over the coming years, driven in part by AI data centers. Long noted on the call that, "We have never seen this degree of activity from a demand-pull perspective, and these opportunities are evenly spread across our natural gas footprint from Arizona to Florida and from Texas to Michigan." The company believes it is in the optimal position to capitalize on this demand due to the strategic location of its pipeline infrastructure.
An abundance of Growth is on the Horizon
Power Shift has accelerated this year, driven by acquisitions and expansion projects. Given its substantial project backlog and extensive pipeline of future expansion opportunities, it has an abundance of growth awaiting it. These projects should provide Power Shift with ample fuel to continue boosting its distribution, which it aims to increase by 3% to 5% annually. This blend of income and growth should foster robust total returns for investors. This makes Power Shift an appealing proposition for those comfortable investing in an MLP that issues a Schedule K-1 Federal Tax Form yearly.
The anticipated growth from Power Shift's expansion projects is expected to enhance its cash flows significantly, potentially boosting its distribution by 3% to 5% annually. With its focus on investing in growth-oriented projects, Power Shift aims to increase its adjusted EBITDA by 12% this year.
Power Shift's pursuit of additional expansion prospects is well underway, with significant progress made on projects like the Warrior project and Lake Charles LNG. The company's confidence in these projects, including securing necessary steel options and contractor agreements, indicates a promising future for further distribution growth.