Pipeline companies remain well positioned despite the current disruption in the energy markets. By and large, these are toll-road businesses where energy prices have only a moderate direct impact on their results.
At the same time, demand for natural gas is growing. This is coming from the increased power consumption stemming from artificial intelligence (AI), as well as from export demand from Mexico and for LNG (liquified natural gas) to Asia and Europe.
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Let’s look at four pipeline stocks that you can buy and hold for the long term.
Energy Transfer (NYSE: ET) operates one of the largest integrated midstream systems in the country, with various pipeline, storage, and processing assets. The company is particularly well positioned in and around the Permian Basin, which is the most prolific oil basin in the U.S. with some of the lowest breakevens. While operators drill the basin for oil, the wells also produce a lot of associated natural gas. Due to flaring (burning of natural gas) regulations, this gas must be transported and find a home, which, due to its abundance, leads to some of the cheapest regional prices in the country.
Access to this cheap natural gas gives Energy Transfer a lot of growth project opportunities. It significantly increased its growth capital expenditures (capex) from $3 billion in 2024 to $5 billion in 2025. One of its keystone projects is the Hugh Brinson Pipeline, which will take gas away from the Permian to support growing power demand in Texas stemming from AI. It has also signed its first contract directly with a data center developer.
Energy Transfer’s robust project backlog sets it up for solid growth in the coming years. Meanwhile, the stock carries an attractive 7.9% yield with a well-covered distribution that it plans to grow at a 3% to 5% rate moving forward.
A model of consistency, Enterprise Products Partners (NYSE: EPD) has increased its distribution for 26 straight years. Like Energy Transfer, the company is also well positioned in the Permian and has ramped up its growth capex. It plans to spend between $4 billion and $4.5 billion in growth projects this year, up from $3.9 billion a year ago and only $1.6 billion in 2022.
Enterprise currently has $7.6 billion in growth projections under construction, of which $6 billion are slated to come online at some point this year. That should help its growth both this year and next year. Most of these projects are centered around the Permian Basin.
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The stock has an attractive 7.1% yield with a robust 1.7 times coverage ratio based on its distributable cash flow (operating cash flow minus maintenance capex). It increased its distribution by nearly 4% year over year last quarter.
Image source: Getty Images.
The Williams Companies (NYSE: WMB) owns arguably the most valuable natural gas pipeline system in the country in Transco, which traverses the Southeastern U.S. from natural gas-rich Appalachia down to the Gulf Coast. Through this system, it transports natural gas to the major cities of this growing region.
The beauty of Transco is that it provides Williams with numerous attractive expansion projects stemming from the system. Much of this is coming from utilities looking to switch from coal to natural gas. However, it can also send natural gas down to the LNG corridor to be shipped overseas and is well positioned to serve data centers in the Southeast as well. It had seven Transco expansion projects with in-service target dates between the first quarter of 2025 and the fourth quarter of 2029 at the end of last year in its backlog.
Williams currently has a 3.5% yield as it focuses more on growth. However, it plans to grow its dividend by more than 5% this year.
With around 40% of U.S. natural gas production flowing through its pipes, Kinder Morgan (NYSE: KMI) plays a vital role in the U.S. midstream sector. It also has a robust presence in the Permian Basin and throughout Texas, including near Abilene, Texas, which is where the first data center as part of the Stargate Project will be built.
Like other large pipeline companies, Kinder is also seeing increased growth-project opportunities stemming from growing natural gas demand. Its project backlog has risen from $3 billion at the end of 2023 to $8.8 billion at the end of Q1 2025. It says these projects are being built at around a 6 times earnings before interest, taxes, depreciation, and amortization (EBITDA) build rate. That means for every $6 it spends, it generates a $1 return in EBITDA, equal to a 16.7% return. That should add an incremental $1.5 billion in EBITDA from these projects in the coming years. It expects to generate around $8.3 billion in EBITDA in 2025, so that is solid growth.
The stock currently has an attractive 4.5% yield, and it’s nicely improved its balance sheet over the past several years, taking its leverage (net debt divided by trailing-12-month adjusted EBITDA) from 5.1 times in 2017 to 4 times in 2024.
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Geoffrey Seiler has positions in Energy Transfer and Enterprise Products Partners. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
4 Pipeline Stocks to Buy With $1,000 and Hold Forever was originally published by The Motley Fool
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