Natural gas storage plays a crucial role in the energy sector. Gas storage facilities help balance natural gas demand between seasons and during periods of disruption from storms and other factors. Despite their importance, investors often survey these assets.
As a result, many investors didn’t notice it all the activity in the natural gas storage market in recent years. Leading infrastructure operators have accumulated gas storage resources. Their investments in gas storage could give them more fuel to grow their dividends.
Here is take a look at why these companies see value in natural gas storage.
His opposite bet should continue to pay dividends
Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) highlighted the value of its natural gas storage investments in its first quarter letter to investors. The global infrastructure giant noted that it initially began acquiring North American gas storage facilities more than a decade ago. The company took a contrarian stance and purchased several assets as their values ​​fell (investing a total of $310 million), driven by the belief that the market would eventually recover.
That is precisely what happened. Brookfield’s gas storage business has been growing its resources from operations (FFO) with a compound annual rate of more than 20% over the past five years. The company has since sold two of its non-core natural gas storage businesses (Tres Palacios in Texas and Salt Plains in Oklahoma) at strong valuation multiples, netting $100 million in cash proceeds.
Despite these sales, it remains one of North America’s largest independent gas storage operators, with annual earnings of more than $240 million before interest, taxes, depreciation and amortization.EBITDA).
Brookfield Infrastructure believes its gas storage business has even more growth ahead of it. In addition to supporting the natural gas market, it sees “several ways in which our assets can support energy transition opportunities,“ wrote CEO Sam Pollock in the first quarterly letter.
The company could eventually use its storage assets for renewable natural gas hydrogen. That’s why it’s excited about the future of this company. Continued earnings growth from its gas storage business would give Brookfield more fuel to grow its dividend, which is currently ahead dividend yield of more than 4.5%. The company aims to increase the payout by 5% to 9% annually.
Go shopping in the gas store
While Brookfield has recently sold some of its non-nuclear gas storage assets, other midstream companies have been purchasing storage assets as they become available. Enbridge (NYSE: ENB) acquired two gas storage assets last year. It bought Tres Palacios from Brookfield and its partner Crestwood Equity Partners for $335 million. It also bought Aitken Creek Natural Gas Storage in Canada for 400 million Canadian dollars ($293 million).
The acquisitions provided an immediate boost to free cash flow. They will also increase its ability to support liquefied natural gas (LNG) export facilities in those regions. In addition, the company recently agreed to establish a joint venture in the US Gulf Coast region, which will enable it to acquire interests in existing gas pipelines and storage assets.
These deals have expanded Enbridge’s already significant gas storage business. The assets help feed gas into existing transmission and distribution pipelines, increasing the value of the system. They also help provide Enbridge with stable, growing cash flow to support its high-yield dividend (currently over 7%), which Enbridge has raised for nearly 30 years in a row.
Make a deal for gas storage
The gigantic natural gas pipeline Williams (NYSE:WMB) has made the biggest splash in the field of gas storage. In early January, it completed the acquisition of a large natural gas storage portfolio for nearly $2 billion. It purchased a portfolio of six gas storage facilities in Louisiana and Mississippi to integrate into its existing pipeline network to support the energy and LNG markets.
Williams expects growing demand to drive significant earnings growth from these assets. That will add to the incremental cash flow it will collect from the needle-moving deal. Growing profits allowed the company to increase its dividend by more than 6% earlier this year, pushing its forward yield above 4.5%. With more growth on the horizon, Williams should have the fuel to keep increasing its dividend.
Maintaining their dividends well
Natural gas storage doesn’t get much attention. However, it is crucial for the energy market. Therefore, it should provide Brookfield Infrastructure, Enbridge and Williams with growing cash flow going forward. That should give these companies more fuel to increase their high-yield dividends, making them even more attractive options for income-seeking investors.
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Matt DiLallo holds positions at Brookfield Infrastructure, Brookfield Infrastructure Partners and Enbridge. The Motley Fool holds and recommends positions in Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
These high-yield dividend stocks see value (and growth) in this overlooked space was originally published by The Motley Fool
