The sudden, explosive conflict between Iran and Israel that send shockwaves through global markets seems to be on pause right now. Following Israel's retaliatory missile attack on Iran's Isfahan region, Tehran hasn't shown any immediate interest in further escalating the conflict between the two longtime rivals. As a result, some of the risk premium has deflated out of the oil market this week, with June-dated crude futures (CLM24) settling Monday's session more than 4% below last Friday's high.
However, with economic data still pointing to a strong U.S. consumer, and the Russia-Ukraine war raging on, forecasts for energy demand more broadly remain robust.
For investors wondering how to play this volatile oil market ahead of the traditionally bullish summer travel season, it's worth considering dividend-paying stocks that operate in the midstream - which offer some relative shelter from the highs and lows of this cyclical investment space. Here are five midstream operators that are top-rated by the analyst community, and pay regular dividends to shareholders to help buffer volatility in share price returns.
1. Targa Resources
Founded in 2005 and based out of Houston, Targa Resources (TRGP) is a midstream energy company that primarily focuses on transporting, gathering, and processing natural gas liquids (NGLs) like propane and butane. They operate in key shale plays like the Permian Basin and Bakken Formation. Its market cap currently stands at $25.13 billion.
Targa Resources stock is up 31.1% on a YTD basis, and it offers a dividend yield of 1.77%.
Overall, analysts have deemed the stock a “Strong Buy,” with a mean target price of $117.29. This indicates an upside potential of about 3.06% from current levels. Out of 17 analysts covering the stock, 15 have a “Strong Buy” rating and 2 have a “Moderate Buy” rating.
2. Enterprise Products Partners
Enterprise Products Partners (EPD) is a master limited partnership (MLP) that operates in the midstream oil and gas sector. Founded in 1978, the Houston-based company focuses on transporting, processing, storing, and distributing natural gas (NGK24), NGLs, crude oil, refined products, and petrochemicals. They have a vast network of pipelines and storage facilities across the U.S., with a particularly strong presence in the lower 48 states. Its market cap is currently $62.87 billion.
EPD stock is up 10.5% on a YTD basis. A “Dividend Aristocrat,” having raised dividends for 25 consecutive years, the stock offers a dividend yield of 6.95%.
Analysts have a consensus rating of “Strong Buy” for EPD with a mean target price of $32.50, which denotes an upside potential of roughly 12.1% from current levels. Out of 17 analysts covering the stock, 13 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 2 have a “Hold” rating.
3. Energy Transfer
Founded in 1996, Energy Transfer (ET) is a midstream energy company engaged in the pipeline transportation, storage, and terminaling of natural gas, crude oil, NGLs, refined products and liquid natural gas. Their assets are primarily located in Texas and the U.S. midcontinent region. They also have a significant presence in gathering and processing facilities, fractionation (separating NGLs from natural gas), and fuel distribution. The company currently commands a market cap of $53.3 billion.
Energy Transfer stock has jumped 15% on a YTD basis. The stock offers a dividend yield of 7.89%.
Overall, analysts have a rating of “Strong Buy” for ET stock, with a mean target price of $18.08 - which denotes an upside potential of about 14.2% from current levels. Out of 15 analysts covering the stock, 13 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 1 has a “Hold” rating.
4. Williams Companies
Founded in 1908 as Williams Brothers by Miller and David Williams in Fort Smith, Arkansas, Williams Companies (WMB) is a midstream energy company focusing on owning and operating large-scale natural gas pipelines like the Transco and Northwest pipeline systems. Its market cap currently stands at $47.1 billion.
WMB stock is up 11% on a YTD basis, and it offers a dividend yield of 4.72%.
Analysts have deemed the stock a “Moderate Buy,” with a mean target price of $39.50. This indicates an upside potential of 2.2% from current levels. Out of 22 analysts covering the stock, 7 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, 11 have a “Hold” rating, and 1 has a “Strong Sell” rating.
5. Kinder Morgan
Founded in 1977 by Richard D. Kinder and William V. Morgan, Kinder Morgan (KMI) is a major energy infrastructure company in North America. They focus on the transportation, storage, and distribution of natural gas and NGLs through a vast network of pipelines and terminals. The company operates across various segments including natural gas pipelines, NGL pipelines, terminals, product pipelines, and CO2 pipelines. Its market cap currently stands at $41.7 billion.
KMI stock is up 7.06% on a YTD basis, and it offers a dividend yield of 6%.
Overall, analysts have a consensus rating of “Moderate Buy” for KMI stock with a mean target price of $20.38, which denotes an upside potential of about 8.3% from current levels. Out of 19 analysts covering the stock, 5 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 12 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
