Natural gas storage plays a vital role in the energy sector. Gas storage facilities help balance demand for natural gas between seasons and during periods of disruption from storms and other factors. Despite their importance, investors neglect these assets.
As a result, many investors I did not notice all the activity in the natural gas storage market in recent years. Major infrastructure operators have snapped up gas storage assets. Their investments in gas storage could provide them with more fuel to grow their dividends.
Here is a glance why these companies see value in natural gas storage.
His contrarian bet should continue to pay off dividends
Brookfield Infrastructure (NYSE: BIPC)(NYSE:BIP) highlighted the value of its investments in natural gas storage in its first quarter letter to investors. The global infrastructure giant said it initially began acquiring gas storage assets in North America more than a decade ago. She took a contrarian view, purchasing several assets when values were falling (investing a total of $310 million), motivated by her belief that the market would eventually recover.
It is Exactly What happened. Brookfield’s gas storage business increased its funds from operations (FFO) at 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 assets (Tres Palacios in Texas and Salt Plains in Oklahoma) at high valuation multiples, generating cash proceeds of $100 million.
Despite these sales, it remains one of the largest independent gas storage operators in North America, generating more than $240 million in annual earnings before interest, taxes, depreciation and amortization (EBITDA).
Brookfield Infrastructure believes its gas storage business sees further growth ahead. In addition to supporting the natural gas market, it is about “seeing several ways in which our assets can support energy transition opportunities”,“ wrote CEO Sam Pollock in the first quarter letter.
The company could ultimately use its renewable natural gas storage assets and hydrogen. This is why she is excited about the future of this company. Continued profit growth from its gas storage business would give Brookfield more fuel to grow its dividend, which currently has a forward interest rate. dividend yield by more than 4.5%. The company aims to increase its payout at an annual rate of 5-9%.
Go on a gas storage shopping trip
While Brookfield recently sold some of its non-core gas storage assets, other midstream companies have been snapping up 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 C$400 million ($293 million).
The acquisitions provided an immediate boost to its free cash flow. They will also strengthen its capacity to support liquefied natural gas (LNG) export facilities. in these regions. Additionally, the company recently agreed to form a joint venture in the US Gulf Coast region, which will allow to acquire interests in existing gas pipelines and storage assets.
These transactions expanded Enbridge’s already significant gas storage business. The assets help supply gas to its existing transmission and distribution pipelines, thereby increasing the value of its system. They also help provide Enbridge with stable and growing cash flow to support its high-yielding dividend (currently above 7%), which Enbridge has increased for nearly 30 consecutive years.
Sealing a gas storage deal that shakes things up
Gas pipeline giant Williams (NYSE:WMB) has made the biggest noise in the field of gas storage. In early January, it finalized the acquisition of a major natural gas storage portfolio for nearly $2 billion. It purchased a portfolio of six gas storage assets in Louisiana and Mississippi to integrate with its existing pipeline network to support the electricity and LNG markets.
Williams expects growing demand to fuel significant earnings growth from these assets. This will be on top of the additional cash flow it will collect from the needle-moving deal. The company’s growing profits allowed it to increase its dividend by more than 6% earlier this year, pushing its forward yield above 4.5%. With more growth coming, Williams should have the fuel to continue growing its dividend.
Keep their dividends well funded
Natural gas storage it doesn’t bring much attention. Yet it is vital for the energy market. As a result, it is expected to provide Brookfield Infrastructure, Enbridge and Williams with growing cash flows in the future. This should give these companies more fuel to increase their high-yielding dividends, making them even more attractive options for income-seeking investors.
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Matt DiLallo holds positions in Brookfield Infrastructure, Brookfield Infrastructure Partners and Enbridge. The Motley Fool has positions with and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
These high-yielding dividend stocks see value (and growth) in this neglected space was originally published by The Motley Fool
