In this article, we present to you the 12 Best MLP and Pipeline Stocks To Buy. If you wish to skip our analysis of MLPs, you can click to skip ahead and jump to the 5 Best MLP and Pipeline Stocks To Buy.
The United States boasts an extensive network of over 2.6 million miles of pipelines, responsible for the secure transportation of trillions of cubic feet of natural gas to power plants, industrial facilities, residences, and businesses. Additionally, these pipelines facilitate the delivery of billions of gallons of liquid fuels to refineries, terminals, and refueling stations, playing a crucial role in sustaining the fuel supply for the economy. Oil and gas producers utilize pipelines to transport their production from wells to refineries and market centers, while utilities leverage pipelines to convey natural gas to power plants and distribute it to consumers.
Some companies in the pipeline sector have opted for a unique MLP (Master Limited Partnership) structure for tax purposes. These MLPs often distribute a significant portion of their cash flows to investors, making them particularly attractive to income-oriented investors. The MLP structure has its roots dating back to 1981 when oil and gas producer Apache Petroleum Corporation (APA) introduced investors to the tax advantages of a partnership combined with the liquidity of publicly traded securities such as stocks and bonds. The success of this model prompted numerous companies across various industries to adopt and replicate it. However, in response to the growing popularity of MLPs, Congress decided to impose limitations on these businesses through the Tax Reform Act of 1986 and the Revenue Act of 1987. These legislative measures stipulated that an MLP must derive at least 90% of its gross income from qualifying sources to be eligible for the tax benefits associated with a pass-through entity. While MLPs can potentially offer higher returns, they have historically exhibited greater volatility compared to stocks and bonds. Additionally, MLPs can be sensitive to changes in interest rates, adding an additional layer of risk for investors.
In 2023, Master Limited Partnerships and the broader midstream sector stood out positively within the energy landscape, posting total returns of 23.8% and 14.0%, respectively. This data is based on the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Index (AMNA). While the overall energy sector benchmark ended the year slightly negative in terms of total returns, defensive business characteristics and generous shareholder returns contributed to the strong performance of MLPs and midstream.
Looking ahead to 2024, it remains challenging to pinpoint compelling factors that could drive significant upside for oil and gas prices. OPEC+, particularly Saudi Arabia and Russia, seems committed to maintaining a price floor for oil. However, challenges may arise from any demand weakness and additional supply from countries like the U.S. and Guyana. Potential boosts to oil prices could come from a resurgence in the global economy or supply disruptions due to geopolitical events, such as issues in Red Sea shipping. Nonetheless, from a fundamental perspective, the oil market appears to be adequately supplied. If oil and gas prices remain subdued, midstream and MLPs could once again emerge as the positive aspect within the energy sector in 2024, akin to their performance in 2023. To that end, we have compiled a list of the best pipeline and MLP stocks to buy, the likes of which include Enbridge Inc. (NYSE:ENB), Enterprise Products Partners L.P. (NYSE:EPD), and Targa Resources Corp. (NYSE:TRGP).
An oil and gas crew working on a midstream pipeline, illuminated against a dusk sunlit sky.
Our Methodology
To pinpoint the best pipeline and MLP stocks to buy, we initiated our selection process with the 25 holdings in the Global X MLP & Energy Infrastructure ETF (MLPX) as of January 9, 2024. Utilizing our hedge fund sentiment scores for the third quarter of 2023, we successfully narrowed down our list to the final 12 stocks. Over the past decade, the top 10 consensus stock picks of hedge funds have outperformed the S&P 500 Index by more than 140 percentage points (see the details here). This is a significant outperformance, and it underscores the importance of closely monitoring this frequently overlooked indicator.
12. Pembina Pipeline Corporation (NYSE:PBA)
Number of Hedge Fund Holders: 11
Pembina Pipeline Corporation (NYSE:PBA) is an energy infrastructure firm headquartered in Calgary. The company manages a diverse range of assets, including natural gas pipelines, crude oil pipelines, and natural gas processing facilities. With an extensive network of over 10,000 miles…
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