From Pipelines to Profits: 10 Midstream Energy Stocks You Should Know About

Oil prices continue their climb and contributors to MoneyShow.com continue to find value in the sector. In our prior column, we reviewed the advisors' favorite plays in the oil services sector. Now, we turn to 10 top ideas among midstream energy firms, highlighting both C-Corps and MLPs involved in energy infrastructure and transportation. Rida Morwa, High Dividend Opportunities Magellan Midstream Partners, L.P. operates assets that handle ~50% of the nation's refining capacity (9,800 miles of pipelines, 54 terminals, and 47 million barrels of storage). The MLP is also a significant player in the storage and transportation of gasoline, diesel fuel, and crude oil through its 2,200 miles of pipeline and 39 million barrels of storage capacity. MMP's operations are fee-based, low-risk activities, which are expected to comprise 85% of the FY2022 operating margin. This basically means the company's contracts provide comfortable protection from violent swings in the energy commodity prices. During FY 2021, MMP returned a record $1.4 billion of value to shareholders through quarterly cash distributions and share repurchases. MMP has made $850 million in total repurchases to date (including $50 million in Q1 2022) out of the authorized $1.5 billion repurchase program. Because of these buybacks, MMP has ~8% fewer units outstanding, setting the stage for distribution increases soon. This isn't new for MMP; the MLP boasts a stellar track record of 20 consecutive years of distribution increases, and its current $4.15/share annual payment amounts to an attractive 8.2% annualized yield. The distributions are safe and have room for growth. (Note: MMP issues a schedule K-1 for tax purposes.) MMP is a shareholder-friendly midstream company with an 8.2% yield that would fuel your passive income for the years to come. It's a great pick to help you ride this bear market. Tom Hutchinson, Cabot Income Advisor ONEOK is a large U.S. midstream energy company specializing in natural gas. It owns one of the nation's premier natural gas liquids (NGLs) systems connecting NGL supply in the Rocky Mountains, mid-continent and Permian regions in key market centers, and also has an extensive network of natural gas gathering, processing, storage and transportation assets. Here are some things to like about the company and stock. The company has investment grade rated debt and 85% of earnings are fee-based. In addition, the company has a C corporation structure (it generates a 1099 and not a K-1) Earnings are resilient because ONEOK operates in the best segments and is well positioned in the high-growth shale regions. Natural gas is a rapidly growing fuel source that is much cleaner burning than oil or coal. NGL is by far the fastest growing fossil fuel source. OKE pays a stellar 5.9% yield. It has grown or maintained the payout for 26 straight years that include recession and terrible energy environments. It has also grown the dividend at a better than 8% average annual clip for the last five years. Despite higher earnings and better prospects, OKE still sells below the pre-pandemic high. Demand for natural gas is steady and solidly growing and is resilient in any economy. OKE is a safe stock in a rough market that should continue to perform well while paying a high and safe income. Marty Fridson, Forbes/Fridson Income Securities Investor NextEra Energy Partners, LP is an MLP that was formed by NextEra Energy, Inc. , a leading energy provider and one of the largest utility holding companies. NEP acquires, manages, and owns clean energy projects with stable and long-term cash flows. We currently recommend NEP as a Buy for medium-risk taxable portfolios. Although NEP operates as a limited partnership, it is a C-Corp. and is taxed accordingly for federal income tax purposes. As a result, NEP issues a 1099 as opposed to a K-1 for tax purposes, with dividends taxed at the 15%-20% rate. Last year, the partnership acquired approximately 400 megawatts of contracted wind assets from Brookfield Renewable for roughly $733.0 million, a step that was viewed as a positive transaction by the rating agencies. NEP also acquired from NextEra Energy Resources, a corporate affiliate, a 590-megawatt net interest in an 830-megawatt portfolio of wind and solar projects. NEP's business risk continues to improve, with acquisitions that have helped maintain its strong contractual profile and expanding geographic reach. NEP reported Q1 2022 net income of $144.0 million or $1.72 per share, easily beating analysts' $1.40 estimates. Operating revenue of $281.0 million was a slight miss versus expectations but grew 14.2% from a year earlier due to contributions from new projects. NEP's acquisition strategy stands to improve sales and the bottom line in 2022. We continue to recommend this investment for medium-risk taxable portfolios. With this review, we are raising NEP's fair value price to $80 from $57 for a 3.67% annualized yield. Tim Plaehn, The Dividend Hunter Each share of Plains GP Holdings is backed by one unit of Plains All American Pipelines LP . PAA, the operating company, is a Schedule K-1 reporting MLP. Buying shares of PAGP lets us have an equivalent investment , including dividend rates, that reports tax information on a Form 1099. Plains All American operates primarily as a crude oil pipeline and storage midstream company. The company owns 18,000 miles of oil pipelines and 110 million barrels of storage capacity. Plains owns significant crude oil pipeline capacity out of the prolific Permian Basin. Plains also operates significant midstream assets for natural gas liquids (NGLs). Assets include 200,000 barrels per day of fractionation capacity, 30 million barrels of storage, and 3,900 NGL railcars. In March 2020, I dropped PAGP from our recommendations list when the company cut its quarterly distribution by 50%. At the time, the business generated sufficient free cash flow to support its pre-cut dividend rate. I was not amused. Fortunately, over the last two years, the company used the excess cash flow to pay down a lot of debt and build up a business plan of paying for growth investments only out of free cash flow. The current PAA is a much leaner, high-cash flow company compared to what it was in 2019. After two years of paying the same dividend rate, Plains increased its dividend rate by 21% on April 6. The new rate is $0.2175 per quarter, or $0.87 per share annually. I expect this to be the start of regular, significant annual dividend increases. Currently, PAGP yields right around 7%. I think it's an attractive energy infrastructure addition to the Dividend Hunter portfolio. (Editor's Personal Position: Long PAGP) Elliott Gue, Energy and Income Advisor Energy Transfer LP , a diversified midstream company, raised its dividend for the second consecutive quarter, a 14.3% sequential boost. The payout is now 31.2% higher than six months ago. And management affirmed this month that it eventually intends to restore the pre-pandemic level of 30.5 cents per share, which would be another 52.5% lift from the current price. The shares have returned more than 80% the past two years. But the best should be yet to come, including a return to a high teens price the next 12 months and ultimately the previous cycle high in the mid-$30s. Energy Transfer is a buy for more aggressive investors up to $15. Enterprise Products Partners , the steadiest of U.S. midstream companies, is sticking for now to a conservative policy of low single digit percentage annual dividend increases. But with Q1 distributable cash flow hitting a new record of $1.8 billion up 5.9% from a year ago, consistent expansion of high-quality assets continues. EPD has ample funds to keep paying down debt and financing share buybacks. Looking ahead, Enterprise has $4.6 billion of projects under construction that should begin adding to cash flow in the next 12 months. Our expectation is Enterprise will set a new all-time high this cycle in at least the low $40s, possibly as soon as the next 12 months. Buy up to $33. TC Energy Corp. , Canada's leading energy midstream and power company, reaffirmed guidance for 2022 financial results, as well as 5% compound annual EBITDA growth through 2026. That's based on CAD25 billion of secured capital projects to enter service the next five years, funding 3-5% annual dividend increases. CAD5 billion of projects are on time and budget to enter service this year. The company reports the Coastal GasLink pipeline is now 63% completed and moving ahead with support of key First Nations, who are now primary investors rather than project opponents. And management expects to grab a big slice of rising LNG traffic in both Canada and the U.S., where it already connects 25% of supply for export facilities. The big picture is this large and stable company is still on track for very reliable earnings and dividend growth the next few years. We're raising our highest recommended entry point for conservative investors to $55 or less. Stephen Biggar, Argus Research Enbridge is North America's largest energy infrastructure company. We view it as a leader in the midstream energy industry and we expect the company to benefit from its extensive infrastructure network for both crude oil and natural gas transportation. Enbridge should also benefit from plans to increase capacity on its main shipping line as well as synergies from its 2017 merger with Spectra Energy. Enbridge has paid a distribution to shareholders for almost 65 years, with average annual growth of nearly 12% over the past 20 years. We think the current dividend yield of about 5.9% is safe and sustainable in the current environment. Overall, we view Enbridge as a top equity name for income-seeking investors. Tony Daltorio, Market Mavens One big beneficiary of the mad scramble for American LNG is Sempra Energy a utility and energy infrastructure company focused on electric and natural gas infrastructure. Its LNG terminals and pipelines give it exposure to a growing market for natural gas in the U.S., Mexico, and the rest of the world. In addition to LNG, Sempra's core strength lies in its transmission investments, added to its regulated utilities segment. Sempra's energy transmission business is weighted toward natural gas delivery in California, Texas, and Mexico, all regions with high population growth. Sempra management expects long-term earnings growth to be driven by the company's five-year, $36 billion capital spending plan. Sempra Infrastructure is focused on natural gas expansion, with seven pipeline projects in development or under construction. Adjusted earnings estimates for this year are $8.60. There should be further growth in 2023, driven by higher natural gas demand. Sempra continues to buy back stock and has returned $750 million to shareholders through buybacks over the last six months. It also pays a dividend with a yield of about 2.75%, in line with the peer average. The stock is a buy in the $160 to $170 range. Bob Carlson, Retirement Watch It is time to reduce the risk in our portfolios and increase the margin of safety. The Fed fell behind the curve on inflation. It won't be supporting stock prices again until inflation is near its target. As such, we're looking for funds with margins of safety such as Cohen & Steers MLP & Energy Opportunity . The fund invests in energy-related securities, including master limited partnerships (MLPs) and companies that derive at least 50% of their revenues or operating income from various stages of energy production and sales. It should continue to do well while energy supplies from Russia and Ukraine are reduced. The fund doesn't follow an index, seeking the best opportunities based on fund management's economic outlook. The portfolio can change rapidly. The turnover ratio is close to 100%, meaning there's close to a complete change in the portfolio every 12 months. MLOAX recently held 52 stocks and 55% of the fund was in the 10 largest positions. Top positions were Enbridge , Cheniere Energy , Williams Companies , Targa Resources and ONEOK OKE. The fund is up 14.07% over three months, 23.58% so far in 2022 and 34.20% over 12 months.

From Pipelines to Profits: 10 Midstream Energy Stocks You Should Know About

With oil prices at elevated levels investment expert select their favorite names involved in pipelines and related energy infrastructure.

Columnist Conversation

Two Good Signs -- Especially for Small-Cap Investors

More Insider Buying in American Woodmark (AMWD)

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.