12 Best Pipeline and MLP Stocks To Buy
In this article, we present to you the 12 Best MLP and Pipeline Stocks To Buy. If you wish to skip our analysis of MLPs, you can click to skip ahead and jump to the 5 Best MLP and Pipeline Stocks To Buy.
The United States boasts an extensive network of over 2.6 million miles of pipelines, responsible for the secure transportation of trillions of cubic feet of natural gas to power plants, industrial facilities, residences, and businesses. Additionally, these pipelines facilitate the delivery of billions of gallons of liquid fuels to refineries, terminals, and refueling stations, playing a crucial role in sustaining the fuel supply for the economy. Oil and gas producers utilize pipelines to transport their production from wells to refineries and market centers, while utilities leverage pipelines to convey natural gas to power plants and distribute it to consumers.
Some companies in the pipeline sector have opted for a unique MLP (Master Limited Partnership) structure for tax purposes. These MLPs often distribute a significant portion of their cash flows to investors, making them particularly attractive to income-oriented investors. The MLP structure has its roots dating back to 1981 when oil and gas producer Apache Petroleum Corporation (APA) introduced investors to the tax advantages of a partnership combined with the liquidity of publicly traded securities such as stocks and bonds. The success of this model prompted numerous companies across various industries to adopt and replicate it. However, in response to the growing popularity of MLPs, Congress decided to impose limitations on these businesses through the Tax Reform Act of 1986 and the Revenue Act of 1987. These legislative measures stipulated that an MLP must derive at least 90% of its gross income from qualifying sources to be eligible for the tax benefits associated with a pass-through entity. While MLPs can potentially offer higher returns, they have historically exhibited greater volatility compared to stocks and bonds. Additionally, MLPs can be sensitive to changes in interest rates, adding an additional layer of risk for investors.
In 2023, Master Limited Partnerships and the broader midstream sector stood out positively within the energy landscape, posting total returns of 23.8% and 14.0%, respectively. This data is based on the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Index (AMNA). While the overall energy sector benchmark ended the year slightly negative in terms of total returns, defensive business characteristics and generous shareholder returns contributed to the strong performance of MLPs and midstream.
Looking ahead to 2024, it remains challenging to pinpoint compelling factors that could drive significant upside for oil and gas prices. OPEC+, particularly Saudi Arabia and Russia, seems committed to maintaining a price floor for oil. However, challenges may arise from any demand weakness and additional supply from countries like the U.S. and Guyana. Potential boosts to oil prices could come from a resurgence in the global economy or supply disruptions due to geopolitical events, such as issues in Red Sea shipping. Nonetheless, from a fundamental perspective, the oil market appears to be adequately supplied. If oil and gas prices remain subdued, midstream and MLPs could once again emerge as the positive aspect within the energy sector in 2024, akin to their performance in 2023. To that end, we have compiled a list of the best pipeline and MLP stocks to buy, the likes of which include Enbridge Inc. (NYSE:ENB), Enterprise Products Partners L.P. (NYSE:EPD), and Targa Resources Corp. (NYSE:TRGP).
An oil and gas crew working on a midstream pipeline, illuminated against a dusk sunlit sky.
Our Methodology
To pinpoint the best pipeline and MLP stocks to buy, we initiated our selection process with the 25 holdings in the Global X MLP & Energy Infrastructure ETF (MLPX) as of January 9, 2024. Utilizing our hedge fund sentiment scores for the third quarter of 2023, we successfully narrowed down our list to the final 12 stocks. Over the past decade, the top 10 consensus stock picks of hedge funds have outperformed the S&P 500 Index by more than 140 percentage points (see the details here). This is a significant outperformance, and it underscores the importance of closely monitoring this frequently overlooked indicator.
12. Pembina Pipeline Corporation (NYSE:PBA)
Number of Hedge Fund Holders: 11
Pembina Pipeline Corporation (NYSE:PBA) is an energy infrastructure firm headquartered in Calgary. The company manages a diverse range of assets, including natural gas pipelines, crude oil pipelines, and natural gas processing facilities. With an extensive network of over 10,000 miles of pipelines across North America, Pembina Pipeline Corporation holds a significant position in the energy transportation sector.
Pembina Pipeline Corporation (NYSE:PBA) announced its intention on Wednesday to acquire Enbridge's stakes in the Alliance Pipeline, Aux Sable, and NRGreen joint ventures for C$3.1 billion ($2.30 billion). The transactions are anticipated to be finalized in the first half of 2024. Pembina currently holds a 50% ownership stake in the equity interests of Alliance, Aux Sable's Canadian operations, and NRGreen. Additionally, the company possesses approximately 42.7% of the equity interests in Aux Sable's U.S. operations.
At the end of Q3 2023, 11 hedge funds tracked by Insider Monkey owned stakes in Pembina Pipeline Corporation (NYSE:PBA), down from 15 in the previous quarter. The collective value of these stakes is over $91.04 million. Two Sigma Advisors was one of the company’s leading stakeholders in Q3.
Much like Enbridge Inc. (NYSE:ENB), Enterprise Products Partners L.P. (NYSE:EPD), and Targa Resources Corp. (NYSE:TRGP), Pembina Pipeline Corporation (NYSE:PBA) is one of the best pipeline and MLP stocks to buy.
11. TC Energy Corporation (NYSE:TRP)
Number of Hedge Fund Holders: 12
TC Energy Corporation (NYSE:TRP) is a prominent midstream company headquartered in Calgary, Canada. The energy infrastructure company operates through five primary segments, including Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines, and Power and Energy Solutions.
As of the conclusion of the third quarter in 2023, 12 out of the 910 hedge funds tracked by Insider Monkey had invested in TC Energy Corporation (NYSE:TRP). Among these investors, Robert Richards' Heathbridge Capital Management emerged as the largest, holding 655,365 shares valued at $22.63 million.
10. DT Midstream, Inc. (NYSE:DTM)
Number of Hedge Fund Holders: 18
DT Midstream, Inc. (NYSE:DTM) provides various natural gas services in the United States, operating through two divisions: Pipeline and Gathering. The company develops, owns, and manages an integrated collection of interstate and intrastate pipelines, storage systems, lateral pipelines, gathering systems, treatment plants, compression facilities, and surface facilities.
On November 1, DT Midstream, Inc. (NYSE:DTM) announced a quarterly dividend of $0.69 per share, consistent with previous payouts. The dividend is scheduled to be paid on January 15, 2024, to shareholders of record as of December 18.
According to Insider Monkey's third-quarter database, 18 hedge funds expressed bullish sentiments toward DT Midstream, Inc. (NYSE:DTM). The largest position holder in the company is Amy Minella's Cardinal Capital, with 2.15 million shares valued at approximately $113.9 million.
9. Hess Midstream LP (NYSE:HESM)
Number of Hedge Fund Holders: 21
Hess Midstream LP (NYSE:HESM) is a midstream energy company with a primary focus on the gathering, processing, storage, and transportation of crude oil and natural gas. During the third quarter of 2023, the company achieved revenue of $363 million, surpassing analysts' estimates by $20.6 million. Notably, this reflected an 8.5% growth in revenue compared to the corresponding period last year. The company generated operating cash flow exceeding $215.5 million, with adjusted free cash flow reaching $162.7 million.
The number of hedge funds in Insider Monkey’s database owning stakes in Hess Midstream LP (NYSE:HESM) grew to 21 in the third quarter of 2023, from 15 a quarter earlier. These stakes are worth over $121.8 million in total. Among these hedge funds, Anomaly Capital Management was the company’s leading stakeholder in Q3.
8. Enterprise Products Partners L.P. (NYSE:EPD)
Number of Hedge Fund Holders: 25
Enterprise Products Partners L.P. (NYSE:EPD) stands as a prominent American midstream energy company, operating an expansive network of pipelines, terminals, processing plants, and storage facilities in crucial energy-producing regions of the United States. In August of 2023, the company increased its quarterly dividend to $0.51 per share, marking the 24th consecutive year of dividend growth. With a compelling dividend yield of 7.64% as of January 9, EPD is considered one of the best pipeline stocks to buy.
At the end of September 2023, 25 hedge funds tracked by Insider Monkey reported having stakes in Enterprise Products Partners L.P. (NYSE:EPD), the same as in the previous quarter. The collective value of these stakes is more than $325.2 million. Among these hedge funds, Fairholme (FAIRX) was the company’s leading stakeholder in Q3.
7. The Williams Companies, Inc. (NYSE:WMB)
Number of Hedge Fund Holders: 27
The Williams Companies, Inc. (NYSE:WMB) operates as an energy infrastructure company with segments including Transmission & Gulf of Mexico, Northeast G&P, West, and Gas & NGL Marketing Services. Specializing in natural gas pipeline operations, the company is involved in the processing and transportation of natural gas and natural gas liquids within the United States.
On December 27, 2023, The Williams Companies, Inc. (NYSE:WMB) entered into an agreement to acquire a portfolio of natural gas storage assets from Hartree Partners for $1.95 billion. This acquisition is expected to enhance the company's natural gas storage capabilities to meet the increasing demand for power along the Gulf Coast LNG and data centers along the Transco corridor. The gas assets include six underground natural gas storage facilities in Louisiana and Mississippi, with a total capacity of 115 billion cubic feet, 30 pipeline interconnects to attractive markets, including connections to Transco, and 230 miles of gas transmission pipeline.
As of the close of Q3 2023, 27 hedge funds tracked by Insider Monkey had stakes in The Williams Companies, Inc. (NYSE:WMB), with a collective value of over $200.5 million. With over 1.8 million shares, Polaris Capital Management was the company’s leading stakeholder in Q3.
6. Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 34
Energy Transfer LP (NYSE:ET) is an American company specializing in the transport of natural gas and propane through pipelines. Established in 1995, it operates under Delaware state laws and has its headquarters in Dallas, Texas. The company was founded by Ray Davis and Kelcy Warren.
On November 16, Energy Transfer LP (NYSE:ET) disclosed a non-binding agreement to furnish crude oil from its proposed Blue Marlin offshore port to TotalEnergies SE. As part of the agreement, the Texas-based port will deliver a monthly supply of 4 million barrels.
Insider Monkey's database indicates that the number of hedge funds holding a stake in Energy Transfer LP (NYSE:ET) remained steady at 34 in both the second and third quarters. However, the total value of the stake increased to $803.248 million in Q3, compared to Q2's $606.342 million. The most notable investor in the company was David Abrams' Abrams Capital Management, holding 17.834 million shares valued at $250,215 million.
Similar to Enbridge Inc. (NYSE:ENB), Enterprise Products Partners L.P. (NYSE:EPD), and Targa Resources Corp. (NYSE:TRGP), Energy Transfer LP (NYSE:ET) ranks among the best pipeline and MLP stocks to invest in.
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Disclosure: None. 12 Best MLP and Pipeline Stocks To Buy is originally published on Insider Monkey.