Pipeline companies recovered sharply in November. The gigantic natural gas pipeline Kinder Morgan (NYSE: KMI) rose 15.1%, according to data provided by S&P global market information. Meanwhile, leading Master Limited Partnerships (MLPs) Energy Transfer(NYSE:ET)AndPartners for business products(NYSE:EPD) both rose by more than 20%. Those were huge moves for the relatively slower-growing midstream companies better known for paying high-yield dividends.
Two notable catalysts fueled the rally pipeline supplies: the election and artificial intelligence (AI)-driven growth prospects.
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Stock prices have soared after the elections. The S&P500(SNPINDEX: ^GSPC) is up about 2% since Election Day, driven by optimism that the new Trump administration will cut taxes and regulations.
Several energy stocks have risen even more, fueled by hopes that the new administration will make good on its promise to loosen the shackles holding back American energy production. The belief is that the Trump administration will be more open to granting well drilling permits building related energy infrastructure, such as pipelines and export terminals. This could lead to higher production in the coming years. These rising volumes would benefit midstream companies because it must rise their cash flows.
For example, Tom Long, co-CEO of Energy Transfer, discussed the election results at the company conference call about the third quarter. He said: “This sector has been through a lot in the last four years,” including difficult regulatory and licensing issues.
However, Long sees the incoming Trump administration as a… a breath of fresh air. The MLP believes that this will be the case with the new government Finally can make progress on its Lake Charles LNG project. That project was delayed again last year after the current The administration has temporarily paused the issuance of new ones LNG permits. Finally, continuing the project would significantly strengthen and expand the MLP’s growth profile.
A less hostile government will allow midstream companies to take full advantage of a potential boom in natural gas demand in the coming years, fueled by AI data centers. Energy transfer already exists see great interest for additional gas pipeline capacity to support gas-fired power plants and data centers. Long stated on the call, “We’ve never seen this level of activity from a demand-pull perspective.”
Kinder Morgan co-founder Richard Kinder made similar comments during that company’s third-quarter conference call. He declared“In fact, in my decades of experience in the midstream arena, I have never seen a macro environment so rich in opportunities for the incremental buildout of natural gas infrastructure.” The company has already secured several new gas pipeline expansion projects this year and now has $5.1 billion in committed capital projects underway.
Similarly, Enterprise Products Partners noted on its call that it is seeing more incoming inquiries about potential projects to support additional gas demand in Texas for data centers and gas-fired power plants. That would add to the $6.9 billion in secured capital projects the MLP already has under construction.
With fewer regulatory issues expected and faster growth prospects ahead, these midstream companies could grow faster in the coming years. That could give them more money to boost their already high-yielding dividends.
Pipeline companies soared after the election last month. Investors are pointing out to them the potential for stronger growth prospects as they will face fewer obstacles in taking advantage of the coming surge in energy demand. Despite this rally, most midstream companies are still trading up reasonable valuations and offer high dividend yields (over 4% for Kinder Morgan and over 6% for the MLPs). Therefore, they still look like attractive investments for those looking for income and growth potential.
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Matt DiLallo has positions in Energy Transfer, Enterprise Products Partners and Kinder Morgan. The Motley Fool holds and recommends positions in Kinder Morgan. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
Why Kinder Morgan, Energy Transfer and Enterprise Products Partners Soared More Than 15% in November was originally published by The Motley Fool
