North America needs to invest $641 billion in energy infrastructure by 2035 to meet growing demand. That is expected to triple the annual spending rate, which will drive strong growth for pipeline stocks over the next few decades. In my opinion, here are the five best stocks to invest in the growth of pipeline infrastructure in North America.
The energy infrastructure kingpinInvestors looking to profit from the pipeline boom should take a close look at Kinder Morgan Inc (NYSE: KMI). It is the undisputed leader in energy infrastructure, as it's the largest energy midstream company in North America and the third largest energy company overall. The company owns and operates the largest natural gas pipeline network in North America, at nearly 67,000 miles.
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In addition to that, Kinder Morgan is the largest independent transporter of petroleum products in North America, the largest transporter of carbon dioxide, and the largest independent terminal operator. It also owns the only oil sands pipeline serving Canada's West Coast.
As the map below shows, the company truly has an unparalleled asset footprint in North America.
Source: Kinder Morgan Investor Presentation.
That footprint is expected to grow over the next few years, as the company has an $18 billion backlog of growth projects, with billions of dollars in additional projects also under consideration.
The leader in liquidsWhile Kinder Morgan is the overall leader in many categories,Enterprise Products Partners L.P. (NYSE: EPD) is the clear leader for natural gas liquids, or NGLs. In fact, the company derives more than half of its gross margin from its NGL pipeline and services segment.
One of the company's strengths is in its ability to export NGLs. It is the global leader in propane export capacity, and it's investing to extend that leadership into another key NGL -- ethane -- as it is building a new ethane export facility along the Gulf Coast. Further, the company owns the strategic assets that have it well positioned to export oil should the U.S. oil export ban be lifted.
Enterprise Products Partners is a very well-run pipeline company with a strong balance sheet and $7.4 billion in growth projects under construction to drive future growth.
The pipeline company with the biggest pipelinePipeline companies are spending billions of dollars each year to grow their networks, and many have visibility well into the future because of a strong pipeline of future projects. One of the strongest backlogs is owned by Williams Companies Inc (NYSE: WMB), whichis currently pursuing $30 billion in identified growth projects that it is seeking to complete by the end of the decade. These projects are expected to drive really robust dividend growth, as Williams expects best-in-class 10%-15% dividend growth through 2020.
The complex optionAside from shale-fueled growth, one of the biggest trends in the pipeline sector over the past few years has been a consolidation wave as pipeline companies are consolidating their public entities into one company. We saw this last year when Kinder Morgan brought all four of its publicly traded entities under one corporate banner, and this year, Williams Companies is doing the same with its affiliated MLP. That leaves Energy Transfer Partners LP (NYSE: ETP) as the outlier, here, as it is one of four public entities, which are noted on the chart below.
Source: Energy Transfer Partners LP Investor Website.
While the company has been shifting assets and consolidating positions, it remains a complex entity. However, that complexity aside, Energy Transfer Partners is one of the largest energy midstream companies in the country: It owns 62,000 miles of natural gas and NGL pipelines. Overall, it is the third largest gathering and processing company and the third largest NGL producer in the country.
Further, because of its ownership interest in Sunoco Logistics Partners L.P. (NYSE: SLX), Sunoco LP (NYSE: SUN), and Lake Charles LNG Export Co., it also offers investors diversification into crude oil transportation, retail gasoline distribution, and a future LNG export terminal. It's the total package, even if it is a bit more complex.
The Canadian oil pipeline leaderLike Energy Transfer, Enbridge Inc (NYSE: ENB) is a bit complex as it owns a stake in several other public entities. However, its core asset is its ownership in the world's longest, most sophisticated crude oil and liquids transportation system, which makes Enbridge a leader in transporting Canadian crude oil to the U.S.
That said, the company is diversified well beyond just oil pipelines; it also generates renewable energy and distributes natural gas. That diversification provides the company with a number of growth options, which is why it plans to spend upwards of $44 billion between 2014 and 2018 on growth projects in North America.
Investor takeawayWith $641 million of capital investment needed in energy infrastructure over the next two decades, pipeline companies will stay busy. That's great news for investors, as it suggests the sector will drive exceptional long-term growth, with the five pipeline stocks I've mentioned among the biggest beneficiaries of this growth.
The article The 5 Best Stocks to Invest in Pipelines originally appeared on Fool.com.
Matt DiLalloowns shares of Enterprise Products Partners and has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends Enterprise Products Partners and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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