Midstream master limited partnerships (MLPs) may not be flashy, but they quietly deliver dependable income and steady growth. These companies sit at the center of the energy value chain, earning stable fees from transporting, processing, and storing oil and natural gas.
Let's look at three pipeline stocks to buy now and hold for the long term.
1. Energy Transfer
After cleaning up its balance sheet and improving distribution coverage, Energy Transfer (ET 0.58%) is back in growth mode, spending aggressively to expand its massive U.S. midstream network. It plans to invest about $5 billion in growth capital expenditures (capex) this year, up from $3 billion last year.
Many of its major projects will be centered in the Permian Basin. This includes its new Hugh Brinson pipeline, which is being built to serve the surge in Texas power demand, much of it from new artificial intelligence (AI) data centers, while its Desert Southwest pipeline will move gas into Arizona and New Mexico.
Meanwhile, Energy Transfer's long-discussed Lake Charles LNG export terminal looks closer than ever to becoming a reality. The company has lined up partners and customers for the project, and a final decision is expected by year-end. Global demand for liquified natural gas (LNG) is expected to climb sharply over the next decade, and Lake Charles would lock in long-term fee-based revenues if it moves forward.
The company's financial position is also the best it's been in years, with leverage at the low end of its target range and about 90% of this year's earnings before interest, taxes, depreciation, and amortization (EBITDA) backed by fee-based contracts. Its nearly 8% yield is well-covered by its distributable cash flow (operating cash flow minus maintenance capex), and management expects annual distribution increases of 3% to 5%.
The stock has lagged this year, making it a great time to pick up this midstream leader on the cheap.
Image source: Getty Images.
2. Western Midstream Partners
Western Midstream Partners (WES 0.82%) offers one of the most attractive combinations of high yield, balance sheet strength, and steady growth in the midstream sector. Backed by Occidental Petroleum, which owns more than 40% of the partnership, Western has strong visibility into its cash flows. Its contracts are largely cost-of-service or include minimum volume commitments, which ensure reliable revenue regardless of commodity prices. Meanwhile, the company has a conservative balance sheet with leverage of around 2.9.
Western is also entering a new growth phase, with much of it centered around water handling and natural gas processing. Its $2 billion acquisition of Aris Water Solutions adds over 625,000 acres of dedicated acreage and immediate cost synergies, while its Pathfinder project will create one of the largest produced water systems in the Permian when it starts up in 2027.
It's also expanding its North Loving gas processing plant to meet rising demand. These investments are designed to grow cash flow faster than distributions, giving the company flexibility to boost its payout while still strengthening its financial position.
With a yield of 9.4% and a strong balance sheet, Western is a great option for income-oriented investors.
3. Genesis Energy
Genesis Energy (GEL 3.88%) has been one of the more interesting turnaround stories in the midstream space. The company took bold steps to clean up its balance sheet, including selling its soda ash business for $1.4 billion and using the proceeds to pay down debt and retire expensive preferred units. That move will save roughly $84 million annually in interest and preferred distributions, giving Genesis more breathing room and the ability to focus on its core offshore oil transportation business.
The real excitement now comes from the company's ties to two major Gulf of Mexico oil projects: Shenandoah and Salamanca. These projects are just now starting to ramp up and could add about $150 million in annual operating profit once fully online. Shenandoah is already producing around 100,000 barrels per day, with plans to expand to 140,000 barrels by 2026, while Salamanca should reach 40,000 to 50,000 barrels a day as it ramps through next year.
The company's marine transportation business also remains solid, and management expects to begin generating free cash flow soon, targeting full repayment of its revolver by the end of 2025. Once that happens, distribution growth should follow. Genesis carries more risk than larger midstream players, but if its offshore projects perform as expected, the upside could be significant for investors.
