These natural gas plays offer upside potential, TD Cowen says. They also pay dividends

TD Cowen identifies midstream natural gas companies as a compelling investment opportunity, projecting sustained earnings and dividend growth into the 2030s due to escalating natural gas demand from data centers, particularly in the U.S. Southeast where new pipeline capacity is needed. The firm recommends Kinder Morgan (KMI), Williams Companies (WMB), and Energy Transfer (ET), noting their attractive dividend yields (4.2%, 3.5%, and 7.4% respectively) and potential for consistent returns, with ET's master limited partnership structure offering higher yields but also tax complexities. This sector is poised to benefit from necessary infrastructure expansion to meet the growing energy needs, offering a less volatile investment profile within the energy market.

Analysis

TD Cowen has identified a secular growth catalyst for midstream natural gas companies, driven by accelerating power demand from data centers, with this trend expected to sustain into the 2030s. The analysis pinpoints the U.S. Southeast as a critical bottleneck, where limited spare pipeline capacity will necessitate significant infrastructure investment. Specifically, the region is projected to require 10 billion cubic feet per day (bcf/d) of new pipeline capacity by 2030, with 4 bcf/d yet to be sanctioned, creating a clear growth runway for companies that can add this capacity. This dynamic is expected to support consistent earnings and dividend growth, offering a less volatile profile compared to other energy sub-sectors. TD Cowen highlights three key players poised to benefit: Kinder Morgan (KMI), its top pick with a 4.2% dividend yield and nearly 21% upside to its price target; Williams Companies (WMB), noted as the most levered to this growth with a 3.5% yield; and Energy Transfer (ET), which offers a substantial 7.4% yield due to its Master Limited Partnership (MLP) structure, though this brings tax complexities. Despite ET's 10% year-to-date decline, it holds the strongest analyst consensus with 17 of 18 rating it a buy or strong buy and a consensus upside of nearly 30%.

Key Decisions for Investors

• Investors seeking long-term, dividend-focused exposure to the energy infrastructure build-out driven by data centers should consider midstream natural gas equities like KMI, WMB, and ET.
• Evaluate the distinct profiles of the highlighted companies: KMI offers a balanced risk-reward as a top pick, WMB provides the most direct leverage to demand growth, and ET presents the highest yield but requires tolerance for its MLP structure and associated K-1 tax reporting.
• Monitor company announcements for new pipeline project sanctions in the U.S. Southeast, as these will be key catalysts for validating the growth thesis and could lead to earnings revisions.
• Despite strong analyst sentiment, note the divergent 2025 stock performance between ET (-10%) and its peers (+1% to +7%), suggesting a potential value opportunity in ET for those comfortable with its MLP structure or a signal of market-perceived risks.