The Energy Boom Is Real. These 3 Stocks Are the Smartest Long-Term Buys.
Key Points
Energy Transfer is investing heavily to expand its gas infrastructure.
Kinder Morgan has $10 billion of projects underway and more than $10 billion of additional expansions under development.
Williams has expanded into LNG and power generation, enhancing its long-term growth rate.
- 10 stocks we like better than Energy Transfer ›
The war-fueled surge in oil prices has been the major story in the energy market this year. However, most forecasters expect crude prices to cool off once the Strait of Hormuz reopens.
While oil is the story right now, the real boom in the energy market is natural gas. The cleaner-burning fuel is crucial to support the expected surge in power demand by AI data centers, advanced manufacturing facilities, and electric vehicles. Here are three of the smartest energy stocks to buy to cash in on the gas-fueled power boom.
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Energy Transfer
Energy Transfer (NYSE: ET) is a leader in natural gas infrastructure. It owns over 105,000 miles of pipelines connecting gas wells to AI data centers, power plants, and liquefied natural gas (LNG) export terminals.
The master limited partnership (MLP) -- an entity that sends a Schedule K-1 Federal tax form -- is investing heavily to expand its gas infrastructure to support surging demand. It has two major gas pipeline projects underway (the $2.7 billion Hugh Brinson Pipeline and the $5.6 billion Desert Southwest expansion project). It's also building several new gas processing plants, expanding a gas storage facility, and connecting existing pipelines to new data centers and power plants.
Energy Transfer has secured growth projects that should come online through 2030. These expansions will grow its earnings, enabling the MLP to continue increasing its high-yielding distribution (7% yield), which it aims to boost by 3% to 5% each year. This growth and income combo could give Energy Transfer the fuel to generate robust total returns in the coming years.
Kinder Morgan
Kinder Morgan (NYSE: KMI) operates the largest natural gas transmission network in the country, transporting 40% of the country's production across its more than 65,000-mile gas pipeline system. It also operates other natural gas infrastructure, including gathering and processing assets, gas storage facilities, and an LNG export terminal.
The gas infrastructure giant has committed to invest $10 billion in new growth capital projects that should enter commercial service through 2030 (90% of which are related to gas infrastructure). Notable projects include three large-scale gas pipelines (South System Expansion 4, Trident, and Mississippi Crossing). The company is also pursuing more than $10 billion of additional expansion projects to support surging gas demand.
Kinder Morgan's expansion projects should fuel steady growth in the coming years, with a meaningful uplift in the 2027 to 2029 time frame when its three major gas pipeline projects enter commercial service. These projects will grow Kinder Morgan's cash flows, giving it more fuel to increase its dividend (current yield of 3.5%). The gas pipeline giant has increased its payout for nine straight years.
Williams
Williams (NYSE: WMB) is also a leading gas infrastructure company. It handles a third of the country's gas volumes across its more than 33,000-mile pipeline network.
The pipeline company has significantly expanded its platform over the past year by adding new infrastructure investments. It signed a strategic partnership with Woodside Energy to invest in its Louisiana LNG project. Williams will acquire a 10% stake in that terminal and an 80% interest in the Driftwood Pipeline, which will supply gas to the facility. It expects to invest $1.9 billion in both projects. Additionally, Williams is investing over $7 billion into four natural gas power innovation projects.
Williams is also investing heavily to expand its gas pipeline infrastructure. The company now expects to grow its earnings at a compound annual rate of more than 10% through 2030, a meaningful acceleration of its 5% to 7% historical growth target range. Williams' rapidly growing earnings should support continued increases in its 2.8%-yielding dividend.
Cashing in on the gas power boom
Demand for natural gas will soar in the coming years as it becomes a crucial fuel for power generation. This trend will fuel robust earnings growth for leading gas infrastructure companies, including Energy Transfer, Kinder Morgan, and Williams. That makes them three of the smartest energy stocks to buy to capitalize on the energy boom.
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Matt DiLallo has positions in Energy Transfer and Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
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