The U.S. is about to enter an unprecedented period of power demand. After barely growing over the last 20 years, forecasters expect electricity demand in the country to surge over the next decade, growing more than 10 times faster than the prior 10 years. Several catalysts will power that surge, including the electrification of the heating and transportation sectors, electric vehicles, and AI data centers.
Natural gas will play a crucial role in helping support the expected surge in power demand. Forecasters estimate that the country will consume an additional 20 billion cubic feet per day (bcf/d) of gas by 2030, up from 108 bcf/d last year, and that’s before factoring in the upwards of 10 bcf/d of additional gas demand from data centers. This forecast bodes extremely well for natural gas infrastructure stocks Kinder Morgan (KMI -0.28%), Williams (WMB 0.17%), and Targa Resources (TRGP -0.36%). They look like no-brainer buys right now for those with around $1,000 to invest.
The undisputed leader in gas infrastructure
Kinder Morgan runs the country’s largest natural gas transmission network. It operates 66,000 miles of pipelines that transport more than 40% of the country’s gas production. It also owns 15% of the country’s natural gas storage capacity. Roughly 64% of the company’s cash flows come from natural gas.
The company currently has $5.1 billion of expansion projects underway, roughly $4.3 billion for new natural gas infrastructure. The biggest project is a $1.7 billion investment to expand a pipeline system to supply 1.2 bcf/d of additional gas to Southeast markets that should come online in late 2028. Kinder Morgan has many more potential projects in the pipeline, fueled by the richest opportunity it has ever seen for expanding its network.
Kinder Morgan’s growth projects should give it the fuel to grow its cash flow and dividend. The pipeline giant currently yields over 4%. It could turn a $1,000 investment into more than $40 of annual dividend income at that rate.
Lots of projects in the pipeline
Williams is a leader in gas infrastructure. It operates over 33,000 miles of pipelines across the U.S., handling about a third of the country’s gas demand. The most notable is Transco, the largest gas pipeline in the country by volume.
The company has a long list of gas infrastructure projects under way across its platform. They should come online through the end of the decade, providing a lot of visibility into its ability to grow its earnings. Williams expects to grow its earnings by 5% to 7% annually over the long term, which should support a similar growth rate in its more than 3%-yielding dividend.
Williams has a large pipeline of projects beyond those that it’s working to develop. It could invest over $10 billion across 30 potential projects that could come online in the 2026 to 2032 timeframe. Securing these projects would give it more fuel to grow its earnings and dividend in the future.
High-octane dividend growth ahead
Targa Resources is a leading midstream infrastructure company. It has natural gas gathering and processing assets, natural gas liquids pipelines and fractionation facilities, and liquid petroleum gas export capabilities. Targa has the largest gas gathering and processing position in the Permian Basin, which is a world-class oil and gas resource.
The energy midstream company has several expansion projects underway, including six more natural gas processing plants in the Permian that should come online through 2026. These projects position it to participate in the region’s growing volumes. It also has several other projects underway or in development to fuel additional growth beyond this year.
Targa Resources expects to return 40% to 50% of its growing cash flows to investors over the next several years. It anticipates increasing its 1.5% yield briskly, targeting a 33% increase in 2025 and meaningful annual growth beyond that. Targa also expects to opportunistically repurchase shares.
Cashing in on surging gas demand
An expected surge in power demand over the coming decade should fuel robust growth in natural gas demand. That’s providing gas infrastructure companies with more opportunities to expand their systems. Kinder Morgan, Williams, and Targa Resources are leaders in the sector, which puts them in excellent positions to grow their earnings and dividends at attractive rates in the future, which should fuel strong total returns for their investors.
Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
