For investors seeking stocks that offer consistent and predictable business models along with appealing distributions and strong yields, the pipeline sector is a prime candidate. The sector is currently undervalued compared to historical benchmarks, and conditions for these stocks have been among the most favorable in years.
In addition, firms in both the energy and pipeline sectors are practicing greater fiscal discipline today, maintaining healthier balance sheets and avoiding overly aggressive growth pursuits. Energy producers are now prioritizing cash flow growth rather than simply increasing production, which benefits pipeline companies by providing them with a more stable customer base.
Midstream companies have also reduced their leverage and have better coverage for their distributions in recent years. They have adapted to operate within their cash flow surpluses, leading to improved financial stability.
Moreover, the rising power demands from artificial intelligence (AI) technologies are boosting the demand for natural gas. This trend is creating new project opportunities for pipeline companies. Additionally, the Trump administration has adopted a more favorable approach towards the fossil fuel sector, promoting increased drilling activities.
With this favorable backdrop in mind, let’s explore three pipeline stocks that are potentially strong long-term holdings.
1. Energy Transfer
Holding one of the most extensive integrated midstream systems in the United States, Energy Transfer (ET -0.85%) boasts some of the finest midstream assets available. It is also recognized for having one of the most affordable stocks in the sector, trading at an enterprise value (EV)-to-EBITDA multiple of just over 8 times, significantly below the midstream master limited partnerships (MLPs) historical average of 13.7 times from 2011 to 2016.
The company presents a forward yield of 6.9% and aims to increase its distribution by 3% to 5% annually. Its distribution is well-supported by its distributable cash flow (DCF), which represents the operating cash flow minus maintenance capital expenditures (capex). Furthermore, it plans to invest $5 billion in growth projects this year, up from $3 billion planned for 2024, indicating an optimistic outlook for AI data centers and power opportunities.
2. Enterprise Products Partners
Enterprise Products Partners (EPD 0.15%) is another company ramping up its growth capex this year, increasing its budget to a range of $4 billion to $4.5 billion from $3.9 billion in 2024. Historically conservative, Enterprise had cut its growth capex to $1.8 billion in 2021 and $1.6 billion in 2022 as a reaction to the pandemic’s impact. The increase in spending is a clear indicator of the robust growth environment in the midstream sector.
One compelling reason to consider this stock for long-term investment is its track record of reliability. The company has successfully raised its distribution for 26 consecutive years, even through challenging economic conditions and volatile energy markets. Currently, the stock offers a yield of 6.3%, which is securely covered by its DCF, and while it’s priced higher than Energy Transfer with a forward EV/EBITDA of 10 times, it still trades below its historical averages due to its stability and solid financial foundation.
3. Western Midstream
Offering the highest yield among the three listed stocks, Western Midstream (WES -1.04%) presents an impressive 8.5% yield. It plans to increase its base distribution by approximately 4% in 2025, marking a total year-over-year distribution increase of about 13% over 2024 figures. The company also targets mid- to low-single-digit annual growth rates for future distributions.
Primarily acting as the midstream service provider for its parent company, Occidental Petroleum, which owns over 40% of Western Midstream, the company supplies gathering and processing services across multiple basins including Delaware Permian and the Denver-Julesburg Basin. Western Midstream is in a strong financial position with leverage below 3x and generated $1.3 billion in free cash flow last year. Although its growth capex in 2025 will be slightly lower than in 2024, it will remain focused on organic growth projects and synergistic acquisitions.
The firm recently announced the significant Pathfinder Pipeline project, expected to transport over 800,000 barrels of produced water daily. While only $65 million will be allocated to the project this year, the overall cost is projected between $400 million to $450 million, setting the stage for enhanced growth in 2026. At present, the stock is fairly valued with an EV/EBITDA ratio exceeding 9x based on 2025 analyst estimates.
