Pipeline companies are strategically positioned to weather the ongoing turbulence in energy markets. These firms primarily operate on a toll-road model, meaning their financial performance is not overly sensitive to fluctuations in energy prices.
Interestingly, the demand for natural gas is on the rise, fueled by increased power consumption driven by advancements in artificial intelligence (AI) and rising export needs for liquefied natural gas (LNG) to Asia and Europe. As the world increasingly turns to cleaner energy sources, pipeline firms are uniquely situated to benefit.
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Let’s dive deeper into four outstanding pipeline stocks that could be worth your investment today.
1. Energy Transfer (NYSE: ET) stands as one of the largest integrated midstream operators in the U.S., boasting an extensive array of pipeline, storage, and processing assets. Its positioning in the prolific Permian Basin underscores its growth potential, especially as associated natural gas is produced alongside oil. Due to strict flaring regulations, this abundant gas needs to be transported efficiently, resulting in decreased regional prices that enhance profit margins.
Energy Transfer is set to ramp up its growth initiatives significantly, increasing its capital expenditures from $3 billion in 2024 to a hefty $5 billion in 2025. Key projects like the Hugh Brinson Pipeline aim to facilitate natural gas transport to meet Texas’s surging power demands, bolstered by AI advancements. With a project backlog promising substantial growth, the stock currently offers an attractive yield of 7.9% with goals for incremental distribution growth of 3% to 5% annually.
2. Enterprise Products Partners (NYSE: EPD) exemplifies consistency, having increased its distribution for an impressive 26 consecutive years. Also active in the Permian, Enterprise is committed to a growth capex budget of $4 billion to $4.5 billion for the current year, up from $3.9 billion last year. The company has $7.6 billion in growth projects under development, with $6 billion expected to become operational soon.
With its reliable record of a 7.1% yield and a robust coverage ratio of 1.7 times cash flow, Enterprise Products is not only positioned for growth, but it also appeals to income-focused investors looking for steady returns.
3. The Williams Companies (NYSE: WMB) boast one of the most valuable natural gas pipeline systems in Transco, running from the natural gas-rich Appalachia down to the Gulf Coast. As energy utilities shift from coal to cleaner-burning natural gas, Williams is poised to capitalize on this transition through multiple expansion projects planned for Transco.
While currently focused on growth, Williams offers a 3.5% yield and anticipates increasing its dividend by more than 5% this year. Investors can expect continued growth driven by an evolving energy landscape.
4. Kinder Morgan (NYSE: KMI) is a powerhouse in the midstream sector, controlling about 40% of U.S. natural gas production. With notable projects cropping up around the Permian and Texas, Kinder Morgan is well-positioned to meet the rising demand for natural gas.
The company’s project backlog surged from $3 billion to $8.8 billion in just a few years. For every $6 spent on these growth projects, Kinder Morgan anticipates a robust $1 return in EBITDA—equating to a 16.7% return. This strategic focus promises to further elevate its projected EBITDA to an estimated $8.3 billion in 2025. The stock is currently yielding 4.5% while progressively improving its financial health by cutting its leverage over recent years.
Before diving into investments in these stocks, consider this: the Extreme Investor Network team has meticulously analyzed the potential of these investments against the backdrop of shifting market dynamics. With long-term growth in mind, staying ahead of market trends is not just beneficial; it’s essential. Discover our top 10 stock picks that present unrivaled potential. Explore more »
Geoffrey Seiler holds positions in both Energy Transfer and Enterprise Products Partners. For more insights, consider joining our community at Extreme Investor Network.