Fossil fuels are going to be fueling our world for a long time. However, thanks to technological advances, government policies, and simple economics, which fossil fuels we use is sure to shift.
At present, there's one carbon-based fuel that's kinder to the environment while supporting renewable-energy usage: natural gas. In fact, even the most renewable-focused utilities are positioning themselves for a natural gas-fueled future. Let's take a closer look.
Image source: Getty Images.
Last year, the United States consumed about 27.49 trillion cubic feet of natural gas, accounting for about 29% of total U.S. primary energy consumption. Around 36% of that natural gas is used to generate electricity, while industry uses 28% and heating our homes and businesses consumes 27%. It also marked the biggest year yet for natural gas usage:
Data source. U.S. Energy Information Administration.
There are multiple ways for investors to take part in this trend. Buying natural gas E&P companies or even utilities that specialize in natural gas usage are obvious choices. But perhaps the best way to earn natural gas-fueled profits is by acting as a toll-collector by investing in pipelines. Here are why I believe Enterprise Products Partners LP (EPD 0.05%), ONEOK, Inc. (OKE 0.12%), and Antero Midstream Partners LP (AM -0.19%) are the top three natural gas pipeline stocks on the market today.
1. Enterprise Products Partners LP
Enterprise Products Partners LP is one of the biggest midstream energy companies in North America. It specializes in the transportation and storage of natural gas, natural gas liquids, oil, and various other refined products. EPD has an enormous network, a significant advantage for anyone looking to move natural gas to where it is most profitable:
Image Source: Enterprise Products Partners, LP.
Enterprise continues to benefit from increased natural gas production and consumption. Net income for the second quarter of 2017 was $666 million compared to $570 million for the second quarter of 2016. Net income attributable to limited partners was $654 million, or $0.30 per unit on a fully diluted basis for the second quarter of 2017 compared to $559 million, or $0.27 per unit last year. This allowed the company to increased its cash distribution by 5.0 percent YoY to $0.42 per unit. Investors can also rest easy at night knowing the dividend is secure. Enterprise generated distributable cash flow of $1.1 billion for the second quarter of 2017, yielded a 1.2 times coverage of its $0.42 per unit cash distribution.
2. ONEOK, Inc.
With a market capitalization of $20.55 billion, ONEOK is one of the largest energy midstream service providers in the U.S. OKE's job is to get natural gas from where it is produced to where it is needed:
Image Source: ONEOK, Inc. Barclays CEO Energy Conference Presentation. September 6, 2017.
Like its bigger cousin Enterprise Products Partners, it owns and operates one of the US's premier natural gas liquids (NGL) systems which includes 38,000 miles of NGL and natural gas pipelines, processing plants (1.8 bcf of natural gas processing capacity), and storage facilities (58 bcf of natural gas storage capacity).
OKE also continues to grow alongside increased natural gas usage. On October 23, 2017, the company announced a $200 million plan to expand its announced that the West Texas LPG Pipeline Limited joint venture with Martin Midstream Partners L.P. (which owns 20% of the project). The investment will expand its natural gas liquids (NGL) system into the white-hot Delaware Basin, part of the larger Permian Basin. Q2 2017 profits came in at $71.7 million ($0.33 per diluted share). Demand for ONEOK's system is healthy, its natural gas gathering and processing segment's average fee rate increased to $0.87 per MMBtu in Q2. A 14.4% jump over Q2 2016's $0.76 per MMBtu in the second quarter 2016. The company also continues to share the wealth. On July 2017, ONEOK declared a dividend of 74.5 cents per share 21 percent sequential increase. Such a significant jump may sound alarming, but its Q2 dividend coverage ratio was 1.50. ONEOK is a must-consider pick for anyone investing in the midstream sector.
Antero Midstream LP
Antero Midstream LP is a relatively young natural gas midstream operator. The company owns midstream assets which primarily service the Marcellus Shale (75% of operations) and Utica Shale operating regions of parent Antero Resources which owns over 58% of the company.
Antero owns everything from pipelines to natural gas compressor stations and even water handling facilities. Though domiciled in operating out of Denver, Colorado, its operations are primarily found in West Virginia and Ohio, regions that continue to see a surge in natural gas production. This is perhaps why the company continues to see increased demand for its services.
In the companies' second-quarter reported on August 2, 2017, compression volumes surged eighty-one 81% year-over-year. Low and high-pressure natural gas volumes increased 24 and 38% respectively. These eye-popping results produced a 75% increase in net income to $0.39 per share and allowed the company to grow the quarterly distribution to $0.32 per share. Attempt consecutive quarterly increase since its IPO. With natural gas volumes continuing to surge in the region, Antero Midstream Partners is a robust natural gas infrastructure pick for the years ahead.
Foolish takeaway
It is tough to pick a commodity stock. But there are other ways to invest in the necessary materials that form the building blocks of our world. By investing in the midstream operators that transport in-store natural gas, investors can benefit from the shift toward cleaner fossil fuel usage. Every one of the companies listed above Sport above-average dividend yields and valuable midstream assets. Foolish investors would be wise to give each strong consideration.
