One does occasionally stumble upon investments that, while hardly thrilling, possess a certain…stolid reliability. The energy midstream sector, my dears, is precisely that. I’ve been a shareholder – or, technically, a unit holder, a distinction the accountants insist upon – in both Energy Transfer and Enterprise Products Partners for over a decade. And, frankly, the thought of relinquishing them within the next twenty years seems…unnecessary. A touch vulgar, even.
These are Master Limited Partnerships, you see, which brings with it a smattering of paperwork, naturally. But the advantage, and it’s a rather attractive one, is that a good portion of the distributions are treated as a return of capital. Tax-deferred, of course, until one is forced to part with the units. A delightful arrangement. Essentially, one isn’t immediately penalized for being sensible. These entities, being pass-throughs, avoid the tiresome corporate tax burden and, consequently, offer rather handsome distributions, consistently striving for improvement. And the pipelines themselves? Mere energy toll roads, reliably generating cash flow. A most agreeable combination, and ideal for those of us who prefer a little peace of mind.
Energy Transfer
Energy Transfer operates a rather extensive network, the largest and most diversified in North America, if one is to believe the press releases. They’re particularly well-positioned in the Permian Basin, that prolific oil-producing region, where natural gas is surprisingly affordable. With the demand for gas booming – fueled, rather ironically, by the rise of artificial intelligence – their growth project backlog is, shall we say, expanding.
Two major projects involve transporting natural gas from the Permian to areas of high demand. One pipeline westward, serving Arizona and New Mexico, and another traversing Texas to support the state’s burgeoning AI data centers and general energy needs. They’ve even established direct collaborations with data center operators and the utilities that serve them. Quite the modern operation, really.
Energy Transfer is actively pursuing growth, while simultaneously offering a robust 7.2% yield, with plans to increase distributions by 3% to 5% annually. Their balance sheet is in remarkably good shape, and their distribution coverage ratio (1.8x last quarter) is, if not exactly thrilling, perfectly acceptable. The stock itself is, frankly, cheap – both historically and compared to its peers, trading at a forward enterprise value-to-EBITDA multiple of just 8.6 times. The average pipeline MLP traded at 13.7x between 2011 and 2016. A considerable difference, wouldn’t you agree?
With a prime asset base benefiting from data center energy demands, a generous yield, and an attractive valuation, Energy Transfer is, undeniably, a rather sensible long-term investment.
Enterprise Products Partners
The stock I’ve held the longest in my portfolio is Enterprise Products Partners, since 2008, to be precise. It’s a decidedly…uncomplicated investment. They consistently raise their distribution, year after year, regardless of economic or energy conditions. A most reassuring quality.
The company is remarkably conservative, which has served them well over the years. They increased capital expenditures last year, projecting double-digit EBITDA and cash flow growth in 2027. This year, they’ve dialed back spending, generating ample cash flow to pay down debt and repurchase units. A pragmatic approach, wouldn’t you say?
The stock currently yields 6%, with a nearly 3% year-over-year increase in distributions last quarter. Their distribution is well covered (1.8x last quarter), and their balance sheet is among the strongest in the midstream sector, with leverage of just 3.3x.
Given its consistent nature and perpetually rising payout, Enterprise is a stock I fully intend to continue holding for a very long time. It’s not glamorous, naturally. But then, one doesn’t invest for glamour, does one?
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2026-03-19 18:02