These natgas plays offer upside, TD Cowen says — and they pay dividends
One corner of the energy market is poised to gain as data centers drive demand for natural gas-fueled power, according to TD Cowen – and a few of those providers pay attractive dividends, too. Midstream natgas companies own pipelines and other infrastructure to move oil and gas products, and the burgeoning demand for gas should continue into the 2030s, according to a team of TD Cowen analysts led by Jason Gabelman. This theme could contribute to consistent earnings and dividend growth compared to other energy companies that have more volatile earnings, they said in a report published Monday. “The largest increase in domestic consumption will be centered in the Southeast,” the analysts wrote. “There is limited spare pipeline capacity in the region, meaning that new consumption will need to be met with capacity adds.” TD Cowen highlighted a group of midstream energy stocks that are rated buy and ready to capitalize on the trend. Kinder Morgan Energy infrastructure giant Kinder Morgan emerged as a top pick on TD Cowen’s list. Shares are up 1% in 2025, and the stock offers a current dividend yield of 4.2%. The company is also well liked on Wall Street, with 13 of 21 analysts rating it a buy or strong buy and consensus price targets calling for 12% upside, according to LSEG. “KMI has leverage to nat gas demand growth with good risk/reward in our view,” said Gabelman. His price target of $34 calls for nearly 21% upside from Tuesday’s close. The company is well positioned to meet growing demand in the southern U.S., the analyst said. “We believe the U.S. Southeast will need 10 [billion cubic feet/day] nat gas pipeline capacity by 2030, with 4 bcf/d yet to be sanctioned” he said, adding that the Southwest may need 1 bcf/d. Williams Companies The provider of natural gas pipelines and storage facilities also got a green light from TD Cowen. “WMB is a Buy as the most levered to nat gas demand growth, with potential for a growing backlog of attractive projects,” Gabelman said. His price target of $67 a share implies 16% upside from Tuesday’s close. Williams shares are up nearly 7% in 2025, and the stock offers a current dividend yield of about 3.5%. In all, 13 of 23 analysts rate Williams a buy or strong buy, with consensus price targets calling for about 8% upside. The company has benefited from exposure to projects that will provide natural gas for power along the Southeast corridor, Gabelman said. Energy Transfer LP Energy Transfer was also highlighted by TD Cowen. “ET is a Buy given visible growth underpinning its current valuation with potential upside from incremental growth from its large natgas [gathering and processing] footprint,” the firm said. TD’s price target of $22 per share would translate into upside of nearly 24% from Tuesday’s close. Energy Transfer is a bit different from its peers: It’s a limited partnership, rather than a C-corporation. Master limited partnerships, which include some pipeline names, aren’t subject to federal income taxes. But the investors – or limited partnerships – are responsible for levies on income that’s distributed. C-corporations, on the other hand, are subject to corporate taxes and their shareholders pay taxes on dividends. Because of partnerships’ unique tax treatment, they can offer rich yields. Energy Transfer, for instance, has a dividend yield of 7.4%. Just beware of tax reporting complexities: Investors in partnerships need a Schedule K-1 that details their share of income in order to file their tax returns. If these documents show up late, it can force investors to go on extension to file. ET is off 10% in 2025, but the stock is well liked on Wall Street: Seventeen of 18 analysts rate it a buy or strong buy, LSEG says, and consensus price targets suggest shares could rise nearly 30% over the coming year. — CNBC’s Michael Bloom contributed reporting.
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