3 Brilliant Energy Stocks to Buy Now and Hold for the Long Term

With surging oil prices due to the war with Iran and the closure of the Strait of Hormuz, energy stocks have gotten a strong lift this year. However, if you're looking for energy stocks to buy and hold for the long term, I'd skip the oil patch and look toward the midstream sector.

The pipeline companies in the sector are typically involved in the transportation of fossil fuels and generally act as energy toll roads. The businesses nowadays tend to be largely fee-based, and with increasing energy needs from the rise of artificial intelligence (AI), many have strong growth project backlogs.

Let's look at three pipeline stocks to own for the long haul.

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1. Energy Transfer

Energy Transfer (NYSE: ET) owns one of the largest integrated midstream systems in the U.S., and its strong position in the Permian Basin gives it access to some of the cheapest natural gas in the U.S. This has made it one of the biggest beneficiaries in the midstream space when it comes to AI. It has several growth projects to supply natural gas directly to data centers or to nearby utilities, as well as two large pipeline projects that transport natural gas from the Permian to the Arizona/New Mexico markets and to Texas.

Overall, Energy Transfer has one of the largest growth project backlogs of any midstream company, with a projected growth capital expenditures budget of between $5.5 billion and $5.9 billion this year. With expected mid-teens returns from these projects, the company is poised for strong growth in the coming years. Along with its growth, the master limited partnership (MLP) also sports a well-covered 6.7% yield, while it plans to grow its distribution at a 3% to 5% yearly pace.

Overall, Energy Transfer is a great combination of a growth and high-yield name rolled into one.

2. Enterprise Products Partners

Another MLP, Enterprise Products Partners (NYSE: EPD), has a strong track record of being one of the most consistent stocks in the midstream space. The company has increased its distribution for 27 straight years across all market types. Conservative by nature, Enterprise has one of the strongest balance sheets in the space, with low leverage (3.2 times last quarter) and low-cost debt locked in for an average of 17 years. It currently has a 5.6% yield, which it has been growing at around a 3% annual clip.

The company is not as aggressive on growth projects as Energy Transfer, but it expects strong double-digit earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow growth next year as projects come online. Meanwhile, it is expected to generate $1 billion in free cash flow after paying out its distribution this year, which it will use to pay down debt and buy back stock.

If your main concern is finding a stock you can rely on for a growing distribution, Enterprise is the stock for you.

3. Williams Companies

If you're more interested in growth than income, Williams Companies (NYSE: WMB), which is not an MLP, could be the stock for you. The company owns arguably the most valuable pipeline system in the country, Transco, which traverses the East Coast, delivering natural gas from Appalachia to the Gulf Coast. It's also the asset that keeps on giving, as Williams continues to execute multiple expansion projects tied to the pipeline.

The company is also building out its pipeline systems in the Mountainwest and Northwest and has begun delivering turnkey power solutions to AI data centers. This is a newer, fast-growing segment that provides on-site gas-fired power generation plants for data centers, bypassing local utilities.

Williams is set to spend a whopping $7 billion to $7.6 billion on growth projects this year. It has a backlog of $15.5 billion in transmission projects and another $9.6 billion in power solution projects. Meanwhile, it believes it can achieve a top-notch return of 20% or more on its invested capital.

The company is becoming a big-time player in powering AI data centers and a top energy growth stock to own long-term.

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.