As many Americans fire up their furnaces for the winter months, they’ll also be eyeing their home heating bills. They’re going to be paying more, and several companies will be the beneficiary of those higher prices. Among them will be several midstream oil and gas companies that are responsible for keeping natural gas flowing across the country.
Midstream companies are among the most stable investments in the oil and gas industry. Many operate as master limited partnerships (MLPs). These companies aren’t known for generating significant capital growth. In fact, they’re known as the “utilities” of the natural gas sector.
Investing in MLPs isn’t for every investor as they do present some tax implications. But for investors who have wealth preservation and income as their most important goals, these stocks make up for that with generous dividends.
This article will look at three of the top companies that investors should be looking at right now. Each offers a healthy dividend, but also may be ready to deliver some share price appreciation. But first, let’s answer this question.
Is It Too Late to Invest in Natural Gas Stocks?
It wouldn’t seem to be the case. A poll conducted by Pew Research Center in March 2022 found that over two-thirds of Americans support the use of a diverse energy mix that includes natural gas.
Many of these respondents still want the United States to be carbon neutral by 2050. But most of the respondents were concerned about “unexpected problems” that could result from reducing fossil fuel production.
One of those unexpected problems is on full display since the Russian invasion of Ukraine. Europe relies on Russia for much of its natural gas needs. To meet that need this winter, many European Union nations are looking for natural gas from elsewhere. And the United States is a prime candidate.
Enterprise Products Partners
With a $54 billion market cap, Enterprise Products Partners (NYSE: EPD) is one of the largest midstream companies. In its most recent quarter, the company’s natural gas pipelines transported a record $17.5 trillion BTUs per day which speaks to the ongoing demand for natural gas.
Many analysts note that over 30% of the company’s shares (or “units” since it’s an MLP) are owned by company insiders. The thesis is that this level of ownership means that management has a personal stake in making sure the business is run in a prudent manner. And that is reflected in the company’s balance sheet which keeps a significant amount of cash on hand.
Some of that cash is used to support the dividend which currently has a yield of over 7.6%. Plus, the company just increased its dividend for its 25th consecutive year making it part of the dividend aristocrat club.
As of this writing, EPD stock has just crossed above both its 50- and 200-day simple moving averages after a period of consolidation. This may create an opportunity for investors to capture a little share price growth to end the year.
Enbridge (NYSE: ENB) has a market cap of over $81 billion. I could list many of the same positives for Enbridge as I did for Enterprise Products Partners. This is a very fundamentally sound company with a secure dividend that currently yields over 6%.
One differentiating factor for Enbridge is its ability to capitalize on the growing liquefied natural gas (LNG) market. As mentioned above, Europe is looking to the West for natural gas which will have to be transported as LNG. Enbridge has several projects that are near liquefication terminals. The company expects this will allow it to garner a fair share of this business, which adds growth potential to the solid dividend offered by Enbridge.
Magellan Midstream Partners
The third midstream company to watch is Magellan Midstream Partners (NYSE: MMP). It checks in with the smallest market cap of the three companies. At just over $10 billion, it could be considered a mid-cap company.
MMP stock is up over 10% for the year and is trading above its 50- and 200-day moving averages at the time of this writing. But investors are really buying a stock like this for secure income. The company does have a dividend yield of just over 8%. And the company has increased that dividend for 19 consecutive years.