Unmissable Pipeline Shares to Invest in with a $1,000 Budget Immediately
Energy consumption is on the rise, partially due to the enhanced utilization of synthetic intelligence (SI) software. SI training and inference put a substantial load on computer servers and are energy-intensive. As SI models evolve, so does the demand for computing power and the energy required to sustain it. To cope with this escalating energy consumption, electricity providers are resorting to natural gas for power generation.
A sector likely to thrive in this energy-expanding landscape is the pipeline operators responsible for transporting natural gas. Let's scrutinize four pipeline stocks that appear to be lucrative investments in this energy-hungry environment.
1. Williams
Williams (WMB -3.13%) boasts top-tier expertise in natural gas infrastructure and owns the nation's most esteemed natural gas pipeline: Transco. This pipeline transports natural gas from Appalachia, home to the bountiful Marcellus and Utica basins, to vital energy centers in the Southeast and Gulf Coast, which is concurrently the nation's liquefied natural gas (LNG) transportation hub.
Transco empowers Williams to capitalize on both escalating power demand from data centers as well as any augmented LNG demand. Besides, the pipeline's strategic location has led to nine expansion projects connected to Transco, with in-service dates spanning from the second half of 2024 to 2029. This pipeline consistently delivers.
The company projects 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) to range between $7.2 billion and $7.6 billion, a significant rise from the estimated range of $7 billion to $7.15 billion in 2024. Furthermore, it expects its EBITDA to grow at a compound annual growth rate (CAGR) exceeding 7% within the subsequent five years.
2. Kinder Morgan
Featuring the most extensive natural gas pipeline network in the U.S. (66,000 miles), Kinder Morgan (KMI -2.93%) facilitates transportation of about 40% of the natural gas produced domestically. Additionally, nearly 90% of its natural gas pipeline contracts are "take or pay," ensuring payment for pipeline capacity utilization or not. Overall, around 64% of the company's adjusted EBITDA derives from natural gas service-related activities.
Given Kinder's extensive natural gas network, it's no surprise that the company is witnessing an upsurge in natural gas project opportunities. As stated in its last earnings conference call, management anticipates an unprecedented macro environment teeming with potential for the incremental construction of natural gas infrastructure. This expansion can be attributed to the data center buildout, LNG export demand, and natural gas exports to Mexico.
In the meanwhile, Kinder has several significant projects underway to bolster its growth during the coming years. This includes expanding its GCX system in Texas to transport associated natural gas out of the Permian and its $3 billion South System Expansion 4 project to address increasing energy needs in the Southeast. Overall, the company has $4.2 billion worth of natural gas projects in its pipeline, and pipeline utilization and contract terms have been improving in recent times.
Presently, Kinder aims to augment its adjusted EBITDA by 4% in 2025 and adjusted earnings per share (EPS) by 8%.
3. Enterprise Products Partners
An enduring and prudent player in the midstream sector, Enterprise Products Partners (EPD -2.69%) has recently commenced increasing its development projects due to the rising demand it has observed. After cutting its growth capital expenditures (capex) to $1.6 billion in 2022, it will invest between $3.5 billion and $3.75 billion this year and subsequently escalate this to between $3.5 billion and $4 billion in 2024. The company currently has $6.9 billion worth of projects under construction.
Meanwhile, Enterprise is bullish on the AI data center opportunity in front of it, declaring it as "one of the most promising signals we've seen in natural gas in a long time, and we're eager to serve this new influx of demand." It claims to be receiving numerous calls regarding new natural gas demand in Texas from both data centers and new gas-fired power plants. It further asserts that it is one of the few midstream companies equipped with the pipeline and storage assets to fully leverage this opportunity.
Besides the natural gas potential in its horizon, Enterprise currently sports a 6.6% forward yield and has increased its distribution for 26 consecutive years. This is an opportune time to invest in one of the most reliable performers in the midstream sector as it escalates its growth investments.
4. Energy Transfer
Boasting a vast integrated midstream system and a strong position in the Permian, ensuring access to some of the most affordable natural gas in the country, Energy Transfer (ET -2.36%) is among the most competent midstream companies primed to benefit from the expanding natural gas demand related to the AI and data center buildout.
During their recent financial update, the company highlighted an uptick in energy consumption from AI and data centers in various sectors, alongside multiple requests for power from existing power plants and potential data centers, equivalent to a daily consumption of 16 billion cubic feet (BCF). The company also unveiled plans for a fresh $2.7 billion natural gas pipeline venture, earmarked for extracting gas from the Permian region and bolstering power plant and data center development in Texas. Set for completion by 2026, the project will be underpinned by long-term, revenue-based contracts.
Furthermore, the company's shares present a forward yield of 6.8%, with projections of a 3% to 5% annual increase in dividends. As one of the most cost-effective stocks in the midstream sector, Energy Transfer boasts an enterprise value (EV)-to-EBITDA multiple of merely 8.7 times, making it an appealing investment prospect.
In light of the surging energy demands from data centers and LNG transportation, investing in pipeline operators like Williams (WMB) could be a financially sound decision due to their strategic locations and significant projected earnings growth.
Given Kinder Morgan's (KMI) extensive natural gas pipeline network and robust "take or pay" contracts, the company is well-positioned to capitalize on the increased demand for natural gas infrastructure, resulting from factors such as data center buildouts and LNG exports.
