Natural gas demand in the U.S. is expected to surge 41% from 2017's level through 2027, according to a forecast by industry consultant Wood Mackenzie. Because of that, energy companies need to invest an average of $23 billion per year on new natural gas infrastructure across North America to support that growth. This outlook suggests that natural gas pipeline companies have lots of growth ahead of them, making them great stocks to buy and hold.
Three top options are Kinder Morgan (KMI -0.06%), TransCanada (TRP 0.86%), and Williams Companies (WMB -1.14%). Here's what makes them among the top buys for North America's natural gas-fueled future.
The market leader
Kinder Morgan currently controls the largest natural gas transmission network in North America at more than 70,000 miles, moving about 40% of all the gas consumed in the U.S. The company's system connects the country's fastest-growing supply regions to key areas of demand growth. Because of that, it's well positioned to capture expansion opportunities in the future.
Currently, Kinder Morgan has $4.6 billion of natural gas infrastructure projects under construction, including two long-haul pipelines out of the Permian Basin and an LNG export facility along the East Coast. Meanwhile, the company believes that it can secure between $2 billion and $3 billion of additional expansion opportunities per year going forward, primarily on the gas infrastructure side. Those projects position the company to continue growing its cash flow and dividend at a healthy pace in the coming years.
TransCanada operates the largest gas pipeline system in Canada as well as pipelines across both the U.S. and Mexico. Overall, TransCanada moves a quarter of continental gas demand. That puts the company in a strong position to continue expanding its gas pipeline network in the future.
TransCanada currently has 17.3 billion Canadian dollars' ($12.9 billion) worth of expansion projects underway on its Canadian gas pipeline system alone that should fuel growth through at least 2023. Meanwhile, it's about two-thirds of the way through its $10.5 billion U.S. pipeline expansion program and should finish up its remaining $2.9 billion pipeline buildout in Mexico early next year. These projects help support TransCanada's view that it can increase its dividend at an 8% to 10% annual rate through at least 2021. Meanwhile, it has more than CA$20 billion ($14.9 billion) of projects in development beyond its current backlog that have it well positioned to continue growing its gas pipeline business across the entire North American continent in the decade ahead.
The fastest-growing system still has plenty of fuel
Williams Companies also operates a large-scale pipeline business, with it currently handling 30% of all the gas produced in the U.S. The crown jewel of the company's system is the Transco pipeline that runs along the East Coast, linking key producing areas in the Northeast and Texas to demand centers all along the coast.
Williams Companies recently completed one major expansion project on Transco, which, along with some other projects, will help boost its earnings 10% in the coming year. The company has several more expansion projects on that system lined up, as well as more in development. Those projects, along with others across the rest of its natural gas-focused asset footprint, position Williams to grow its earnings at a 5% to 7% annual rate beyond 2019, which should support steady dividend growth in the future.
Gas-powered dividend growth
All three of these natural gas pipeline companies expect to grow their systems at a healthy pace in the coming decade. Because of that, investors should be able to collect an attractive income stream, since all offer high-yielding dividends that should grow by a meaningful amount in the years ahead. That makes them great stocks to buy and hold for the long term.