Sunoco LP: A High-Yield Energy Infrastructure Play with Accelerating Distribution Growth

The energy infrastructure sector has long been a haven for income-focused investors seeking stable, growing cash flows. In 2025, Sunoco LP (SUN) stands out as a compelling candidate to deliver above-market returns, driven by a combination of strategic acquisitions, disciplined capital allocation, and a robust distribution growth trajectory. With a recent 1.25% quarterly distribution hike and two transformative deals—Parkland Corporation and TanQuid GmbH—on the horizon, SUN is poised to exceed its 5% annual growth target and solidify its position as a top-tier income play.

A Strong Foundation for Growth

Sunoco's first-quarter 2025 results underscore its operational and financial strength. The company reported $458 million in Adjusted EBITDA and $310 million in Distributable Cash Flow, both up sharply from 2024. These figures reflect the resilience of its core segments:
- Fuel Distribution: 11.5 cents per gallon margin and 2.1 billion gallons sold.
- Pipeline Systems: 1.3 million barrels per day throughput.
- Terminals: 620,000 barrels per day throughput, with EBITDA more than doubling year-over-year.

Sunoco's disciplined capital expenditures—$101 million in Q1, including $75 million in growth capital—demonstrate its focus on expanding infrastructure while maintaining operational efficiency.

Strategic Acquisitions: Parkland and TanQuid as Catalysts

The $9.1 billion acquisition of Parkland Corporation and the €500 million purchase of TanQuid GmbH are set to redefine Sunoco's growth narrative.

1. Parkland Acquisition: A Game-Changer
The Parkland deal, structured as a cash-and-equity transaction, is expected to close in H2 2025. Key benefits include:
- Immediate Accretion: Projected to boost distributable cash flow per unit by over 10% in 2025.
- Synergies: $250 million in annual cost savings by Year 3, driven by supply chain efficiencies and operational integration.
- Geographic Diversification: Parkland's operations in Canada, the U.S., and the Caribbean complement Sunoco's existing assets, creating a cross-border fuel distribution network.

The acquisition is also expected to delever Sunoco's balance sheet. At the end of Q1 2025, its net debt-to-EBITDA ratio stood at 4.1x, in line with its long-term target of 4x. Post-transaction, the company anticipates returning to this leverage ratio within 12–18 months, ensuring financial flexibility for further growth.

2. TanQuid Acquisition: European Terminal Expansion
TanQuid's 15 terminals in Germany and one in Poland add a stable, fee-based income stream. As Europe's largest independent terminal operator, TanQuid's infrastructure is critical to the region's fuel supply chain. This acquisition diversifies Sunoco's revenue base and enhances its exposure to the European energy market, which remains a growth area amid shifting regulatory and environmental dynamics.

Distribution Growth: Exceeding the 5% Target

Sunoco's recent 1.25% distribution increase—raising the quarterly payout to $0.8976 per unit—brings the annualized yield to $3.5904. With the Parkland and TanQuid acquisitions, the company is well-positioned to accelerate this growth.

• Cash Flow Expansion: The combined deals are expected to add $1.5 billion in annual EBITDA by 2026, directly boosting distributable cash flow.
• Leverage Management: A $2.65 billion bridge loan and $1.5 billion revolving credit facility ensure the acquisitions are funded without overextending the balance sheet.
• Long-Term Structure: The newly formed SUNCorp entity will provide a two-year dividend equivalent to Sunoco unitholders, preserving distribution continuity during integration.

Why This Is a Compelling Income Play

For income investors, Sunoco's strategy aligns with key market demands:
1. Stable, Recurring Cash Flows: Fee-based income from terminals and pipelines provides resilience against commodity price volatility.
2. Growth Through Diversification: Cross-border operations and strategic synergies reduce regional risk while expanding revenue sources.
3. Attractive Yield: With a current yield of ~5.5% and a clear path to exceed 5% annual growth, SUN offers a rare blend of income and capital appreciation potential.

Risks and Considerations

While the outlook is bullish, investors should monitor:
- Regulatory and Integration Risks: The Parkland acquisition requires regulatory approvals and seamless integration to realize synergies.
- Interest Rate Environment: Rising borrowing costs could impact leverage ratios, though Sunoco's low-cost debt (6.25% senior notes) mitigates this risk.

Conclusion: A High-Conviction Investment

Sunoco LP's strategic acquisitions, coupled with its disciplined capital allocation and robust cash flow generation, position it as a standout in the energy infrastructure sector. The company's ability to exceed its 5% distribution growth target—while maintaining a strong balance sheet—makes it a high-conviction play for investors seeking consistent, above-market returns. As the Parkland and TanQuid deals close in H2 2025, SUN's unitholders are likely to see a material boost in both income and long-term value.

For those seeking a stable, growth-oriented income stream, Sunoco LP offers an attractive opportunity in a sector poised for sustained demand.