Many income investors are understandably attracted to the energy sector. The dividend yields offered by energy stocks are often quite juicy. However, there are some downsides to investing in some energy stocks. For example, the volatility of oil and gas prices can, in some cases, reduce the dependability of their cash flow and dividends.
Not every energy stock comes with this baggage, though. Midstream energy companies aren't concerned with oil and gas prices. Their pipelines are akin to toll roads, collecting fees for moving liquids through their pipelines regardless of oil and gas price swings. If you like energy stocks, in general, I think you'll love these three pipeline stocks that you can hold forever and let the income roll in.
Image source: Getty Images.
1. Enbridge: more than just pipelines
Enbridge (ENB +0.23%) ranks as the largest midstream energy stock based on market cap. It's not surprising, therefore, that the company operates the world's longest (and most complex) crude oil distribution network, with 18,085 miles of pipeline in the U.S. and Canada. Enbridge also operates 70,273 miles of natural gas pipeline, including the assets of its DCP Midstream joint venture with Phillips 66 (PSX 4.26%).
But as impressive as Enbridge's pipeline networks are, there's more to this company than just pipelines. Enbridge is also a utility stock. It's the largest natural gas utility in North America by volume. The company is also investing in renewable energy, with a renewable energy capacity of roughly 7.2 gigawatts, including projects either operating or under construction.
NYSE: ENB
Key Data Points
Like many pipeline stocks, Enbridge offers an attractive dividend. Its yield currently stands at around 5.3%. More impressively, though, the company has increased its dividend for 31 consecutive years.
Enbridge's management has identified $50 billion of growth opportunities through 2030. And leadership has demonstrated that the numbers provided are reliable, as the company has achieved or exceeded management's financial guidance for 20 consecutive years.
2. Energy Transfer: attractive to income and value investors
Want pipelines? Energy Transfer (ET 0.05%) has them -- a whopping 140,000 miles of pipeline across the U.S. The midstream energy company focuses especially on the Permian Basin area in west Texas and the energy hub region near Houston, Texas.
Energy Transfer is a favorite for many income investors. Its forward dividend yield tops 7%. The master limited partnership (MLP) continues to maintain strong distribution coverage. Management is targeting distribution growth of between 3% and 5% per year.
NYSE: ET
Key Data Points
This pipeline stock could also appeal to value investors. Energy Transfer's units trade at only 11.4 times forward earnings and 0.76 times trailing 12-month sales.
What about growth? This stock offers something on that front, too. Energy Transfer has a robust backlog of capital projects. It's enjoying strong growth due to surging demand for artificial intelligence (AI), with the company signing long-term agreements to supply natural gas to three Oracle (ORCL 1.86%) data centers.
3. Enterprise Products Partners: the midstream "steady Eddie"
If I had to pick the best-managed midstream energy company, my vote would go to Enterprise Products Partners (EPD 1.77%). Nearly everything about this pipeline stock screams "steady Eddie."
For example, Enterprise Products Partners boasts the highest credit rating in the midstream energy industry. It has delivered reliable cash flow per unit and double-digit returns on invested capital for two decades, a period that included several serious challenges for the energy sector.
NYSE: EPD
Key Data Points
Enterprise Products Partners has increased its distribution for 27 consecutive years. Its distribution yield is around 5.9%. The MLP has also rewarded unitholders by repurchasing $1.4 billion of its units through the years.
This pipeline stock is poised for growth, thanks to the same tailwinds benefiting both Enbridge and Energy Transfer. With Enterprise Products Partners, you can count on responsible growth investments that don't weaken the company financially.
