The investment potential for pipeline companies is simply staggering. By 2035, midstream companies will need to invest $614 billion to build pipelines, pumps, and other energy infrastructure to move oil, natural gas, and NGLs from producing basins to market centers. By the end of the decade alone $114 billion will need to be invested to build new natural gas pipeline infrastructure in the U.S. while another $272 billion will need to be invested to build new oil pipelines in the U.S. and Canada. The best stocks to invest in to profit as these pipelines are built are the companies that have a proven ability to capture these opportunities and create the most value for investors. The three that top both lists are Enterprise Products Partners L.P. (NYSE:EPD), Kinder Morgan Inc (NYSE:KMI), and Enbridge Inc (NYSE:ENB).
Enterprise Products Partners is one of the top master limited partnerships, or MLPs, in the midstream sector as it has one of the largest integrated midstream energy systems in America. That system is expected to keep growing since the company currently has $5.4 billion of projects under construction and a growing visibility of future growth opportunities as it captures some of the more than $600 billion in future pipeline project opportunities.
However, what makes Enterprise Products Partners one of the best pipeline stocks to invest in isn't just the strength of its growth pipeline, but the strength of its operations. One of its biggest accomplishments is completing major projects on time and under budget. As the following slide shows, the company has invested $10 billion since 2009 to build 70 major projects, and yet it completed all of those projects 3% under budget.
What this tells us is that Enterprise Products Partners is focused on earning strong returns and not building an empire. This is why it also has one of the highest credit ratings of any MLP and has been able to grow its distribution to investors for 40 straight quarters. The company is showing no signs it won't be able to maintain that pace, making it one of the best stocks to invest in to profit from America's pipeline build-out.
Delivering returns that matter
Kinder Morgan is already the largest energy infrastructure company in North America; it's currently worth over $140 billion. However, over the next five years, the company expects to invest another $17 billion on just its currently identified organic growth projects. The company will likely invest even more money as there are a number of potential projects not included in that backlog as it grows its already-mammoth size.
However, as impressive as Kinder Morgan's project backlog might be, that isn't what makes it the best stock to invest in for investors seeking to profit from our growing need for oil and gas pipelines. Instead, it's the returns Kinder Morgan earns on invested capital that make it a top stock. As the following slide shows, those returns have averaged well over 20% for more than a decade.
When we combine Kinder Morgan's strong backlog with its consistency in delivering strong returns on invested capital, we have a compelling investment opportunity and a real blue-chip energy stock.
A formula for success
Enbridge has a simple three-step formula to create value for investors. First, it is focused on operating its pipelines safely and reliably. Second, it plans on executing an ambitious growth program that is by far the largest in this group. Finally, it plans to extend and diversify its growth in the future.
When we look at the company's current growth pipeline, it's impressive to say the least. The company currently has an enterprisewide program totaling a staggering $37 billion in commercially secured growth capital projects, with another $5 billion in unsecured projects. These projects are expected to deliver 10%-12% compound annual earnings growth through 2017, which should create a lot of value for investors.
However, Enbridge is just as focused on its next set of growth projects as it looks to new growth platforms. It sees these future projects extending its double-digit earnings growth well into the future, making it one of the best stocks to invest in to profit from the boom to build energy infrastructure in North America.
Enterprise Products Partners, Kinder Morgan, and Enbridge will be spending billions of dollars in the years ahead to build new pipelines. However, in each case, these new pipelines will drive returns to investors as all three companies are focused on growing profits and not just their pipeline systems. Because the focus is on growth that drives value, these stocks should reward pipeline investors for many years to come.
Matt DiLallo owns shares of Enterprise Products Partners. Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends Enterprise Products Partners and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.