2 Stocks I Plan to Hold for the Next 20 Years
Key Points
Energy Transfer is poised to be an AI data center winner.
Enterprise Products Partners has been the most consistent pipeline stock over the years.
- 10 stocks we like better than Energy Transfer ›
If you're looking for some high-yield stock you can hold for a long time, say, like 20 years, look no further than the energy midstream space. I've held shares (technically units) of both Energy Transfer (NYSE: ET) and Enterprise Products Partners (NYSE: EPD) for more than a decade, and I can see holding them for another 20 years.
Both are midstream companies structured as master limited partnerships (MLPs). While this comes with a little added paperwork come tax time, MLPs have the added advantage that much of their distributions are treated as return of capital and are thus tax-deferred until you sell the units. So instead of paying taxes on the distribution, they reduce your cost basis. MLPs are pass-through entities that aren't taxed at the corporate level, so they generally pay handsome distributions that they continually look to increase. Meanwhile, the pipeline businesses that are the core of their operations act as energy toll roads and generate very steady, visible cash flow. This, along with the preferred tax treatment, makes them great stocks to own for the very long haul.
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Let's dig deeper into why Energy Transfer and Enterprise are two of my favorite midstream MLPs.
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Energy Transfer
Energy Transfer operates one of the largest and most diversified midstream operations in North America. The company is well-positioned in the Permian Basin, the most prolific oil basin in the U.S., and home to some of the lowest-cost natural gas. With natural gas demand booming as energy needs increase, especially with the rise of artificial intelligence (AI), Energy Transfer has seen its growth project backlog swell.
Two of the company's biggest projects are transporting natural gas from the Permian to high-demand areas. One pipeline will head west and serve the Arizona and New Mexico markets, while the other will traverse Texas to support the state's growth in AI data centers and energy needs. It also has several projects directly with data center operators, as well as with the utilities that serve them.
Energy Transfer is in growth mode, but it also carries a robust 7.2% yield with plans to grow its distribution at a 3% to 5% clip annually. Its balance sheet is in some of the best shape it's been in during its history, and it has a high distribution coverage ratio (1.8x last quarter). Meanwhile, the stock is cheap both historically and compared to peers, trading at a forward enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple (the most common way to value pipeline stocks) of just 8.6 times. To put that in perspective, the average pipeline MLP traded at a 13.7x multiple between 2011 and 2016.
With one of the best asset bases to benefit from data center energy demands, a high yield, and an attractive valuation, Energy Transfer is one of my favorite stocks to own for the long term.
Enterprise Products Partners
The stock I've held the longest in my portfolio is Enterprise Products Partners, which I've owned since 2008. It's a sleep-well-at-night stock that has consistently raised its distribution year in and year out for the past 27 years, regardless of economic or energy conditions.
The company is conservative by nature, which has served it well over the years. It ramped up its growth project capital expenditures (capex) last year, which it has projected will help lead to double-digit EBITDA and cash flow growth in 2027. Meanwhile, it has dialed back its spending this year, which will give it ample cash flow to pay down debt and buy back units.
The stock currently carries a 6% yield, and it increased its distribution by nearly 3% year over year last quarter. Its distribution is also well covered (1.8x last quarter), and it has one of the best balance sheets in the midstream space with leverage of just 3.3x.
Given its consistent nature and constantly rising payout, Enterprise is a stock I plan to continue to hold for a very long time.
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Geoffrey Seiler has positions in Energy Transfer and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
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