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Investing in pipeline stocks

Dividends are common perks, but protests can sideline projects and hurt profits.

Investing in pipeline stocks is a unique opportunity to buy into the profitability of the oil and gas sector. But public opposition to pipeline infrastructure has the potential to interrupt projects and halt construction efforts.

What are pipelines?

Pipelines are the physical structures responsible for transporting natural gas, crude oil, natural gas liquids, petroleum and petrochemicals from production centers to refineries, docks, terminals, power plants and consumers. They are a core component of the oil and gas industry and without their infrastructure, the system would grind to a halt. Pipelines can be divided into four subcategories:

  • Gathering. These lines gather products from wells and transport them to processing plants.
  • Feeder. These lines transport oil, gas and liquids from storage tanks and processing plants to transmission pipelines.
  • Transmission. These large pipelines can span more than three feet wide and are responsible for carrying oil, gas and natural gas liquids across state lines and country borders for processing or storage.
  • Distribution. These pipelines are responsible for distributing natural gas to homes and businesses.

Pipeline stocks are stocks from companies that build, operate or maintain energy pipelines. Generally, there are two types of companies in this space: pipeline corporations and master limited partnerships (MLPs). Both are viable investment opportunities.

How do I buy pipeline stocks?

  1. Choose a stock trading platform. If you’re a beginner, our table below can help you choose.
  2. Open your account. You’ll need to provide your ID, bank account information and Social Security number.
  3. Fund your account. Before you can start trading, you’ll need to fund your account with a bank transfer.
  4. Search for stocks. Use a stock screener to sort and filter stocks.
  5. Submit your order. Once you’ve found a security you’d like to buy, indicate how many you’d like to purchase and submit your order.
  6. Monitor your investments. Log in to your brokerage account to track the performance of your portfolio.

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Pipeline stocks

There are many stock options for investors ready to buy into the pipeline category. See how the following stocks are performing, and view details like market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield.

What ETFs track the pipeline category?

Exchange-traded funds that include pipeline companies typically track multicap energy master limited partnerships (MLPs).

  • Alerian MLP ETF (AMLP)
  • Energy Select Sector SPDR Fund (XLE)
  • ETRACS Alerian MLP Infrastructure Index ETN (MLPB)
  • Global X MLP & Energy Infrastructure ETF (MLPX)
  • iShares Global Energy ETF (IXC)
  • UBS E-TRACS Alerian MLP Infrastructure ETN (MLPI)

Why invest in pipelines?

The US is home to the largest pipeline network in the world. And that network is poised for growth. From 2019 to 2025, US oil production is projected to grow by 46%. And this growth will require more pipeline infrastructure. While it’s true that we’ve begun to experience a global shift towards green energy, we’re far from eliminating our reliance on gas and oil. Plus, many pipeline companies pay dividends, making pipeline stocks a practical portfolio addition for buy and hold investors.

Risks of investing in pipeline stocks

The profitability of pipeline companies depends on the price of oil and gas. And oil and gas prices can be unstable. Pipeline companies get paid based on the amount of gas and oil they move. When the price of these commodities falls, drilling companies cut back their activity, well output declines and less oil and gas flows through pipeline infrastructures.
Another risk for investors to consider before buying into pipeline stocks is the rising opposition to new infrastructure. Investors should be aware of the environmental risk it poses. Namely, pipeline leaks have the potential to contaminate water supplies. Pipeline protests can sideline construction efforts and delay projects, effectively reducing productivity and decreasing profits for companies and shareholders alike.

Compare trading platforms

Before you can invest in pipeline stocks, you’ll need a brokerage account. Review your options below.

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Bottom line

Investors seeking a dividend-paying, long-term investment may find value in pipeline stocks. But profits in this category depend on the price of oil and gas and may be impacted by public opposition. Before you invest, find the right brokerage account that fits your investment goals.

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