With changing government administrations potentially becoming more favorable to the energy sector and with many of the stocks in that sector trading at a discount to historical valuations, midstream stocks are shaping up to be solid long-term investments right now.
Let's look at four great midstream stocks you might want to consider buying now and holding over the long run.
1. Energy Transfer
Energy Transfer (ET +0.85%) owns one of the largest integrated midstream systems in the U.S., which also allows it to be one of the biggest energy arbitrageurs in the country. Most of its businesses are fee-based, but this gives the company additional opportunities to profit when seasonal, regional, or product spreads arise.
NYSE: ET
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The company is particularly well positioned in the Permian, the most prolific oil basin in the U.S. The Permian is also home to a lot of cheap associated natural gas, giving Energy Transfer a lot of opportunity around growing power needs for artificial intelligence (AI). The company is boosting its growth capital expenditures (capex) to take advantage of these opportunities.
In addition to the growth in front of it, Energy Transfer sports a 7% forward yield. Its distribution is well covered and expected to grow by 3% to 5% a year moving forward, making it a great option for income-oriented investors.
2. MPLX
MPLX (MPLX +0.86%) is a midstream company that operates in two segments: logistics & storage (L&S) and gathering & processing (G&P). It handles approximately 10% of the natural gas produced in the U.S. and has strong positions in both Appalachia and the Permian. On the crude side, meanwhile, it primarily serves its parent and largest shareholder, refiner Marathon Petroleum.
NYSE: MPLX
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The company is upping its growth capex this year, given the opportunities it is seeing, taking it from $889 million last year to $1.7 billion in 2025. It is starting to see increasing demand, both from exports and artificial intelligence (AI) infrastructure. It recently formed a strategic partnership with Oneok to bolster its competitiveness in the NGL (natural gas liquid) and natural gas value chains. This includes a new joint venture that will help its export capabilities.
The stock current carries a 7.1% forward yield and low leverage of 3.1 times. It's grown its yearly distribution by 10% or more each of the three past years.
3. Williams Companies
Williams Companies (WMB +0.14%) owns arguably the most valuable pipeline system in the U.S. in Transco, which connects the natural gas-producing region of Appalachia to the Gulf Coast while traversing important Southern-state utility markets. The pipeline system is the gateway to numerous expansion projects to connect to the system.
Transco is well situated to benefit from several energy market themes, including coal-to-gas switching, increasing LNG (liquified natural gas) demand, and robust power demand coming from AI infrastructure.
NYSE: WMB
Key Data Points
Expansion projects related to Transco connections tend to have very strong returns. Meanwhile, Williams currently has seven Transco expansion projects set to come online between 2025 and 2029.
With a 3.4% yield, Williams doesn't have as high of a yield as some other midstream companies, but it had a robust dividend coverage ratio of 2.3x, and it grew its dividend by 6% last year. Meanwhile, it has solid growth ahead. It is looking to grow its earnings before interest, taxes, depreciation, and amortization (EBITDA) by 8% in 2025 and has a goal to grow it at a 5% to 7% compounded annual growth rate (CAGR) moving forward.
4. Cheniere Energy
One of the companies best situated to take advantage of increasing LNG export demand is Cheniere Energy (LNG +2.33%). The company owns a nearly 50% stake and the incentive distribution rights (IDRs) in Cheniere Energy Partners (CQP 0.58%), which owns the country's largest LNG export facility in the Sabine Pass in Louisiana. It also directly owns the Corpus Christi LNG terminal in Texas.
LNG facilities liquify natural gas so it can be exported overseas, where it is then regasified. IDRs, meanwhile, give Cheniere a share of Cheniere Energy Partners' distributions. Most midstream companies have eliminated their IDRs, given the advantages it gives the general partner, which in this case is Cheniere Energy.
Demand for LNG continues to grow as a cleaner and cheaper energy source. Export growth is largely driven by Asia, where natural gas prices are much higher than in the U.S. Shell recently forecast that it expects LNG demand to rise by 60% by 2040.
Image source: Getty Images.
The company is in the process of expanding its facilities, starting with its Corpus Christi terminal. It will add three trains (liquidization units) to the facility this year, increasing total Cheniere production capacity by 20%. Meanwhile, it is looking for final investment decisions to continue to expand Corpus Christi in 2025 and for the expansion of the Sabine Pass next year.
Cheniere is not going to provide much of a dividend, but it is one of the best ways to play increasing LNG export growth over the next 10 to 15 years.
