Pipeline-centric midstream Master Limited Partnerships (MLPs) have emerged as attractive investment options in the current market landscape. Trading at historically low valuation multiples and accompanied by promising growth outlooks, these companies offer a blend of income and expansion potential. For those with $1,000 available for investment—beyond immediate financial obligations or emergency reserves—allocating capital into this sector could be advantageous.
This analysis explores three prominent pipeline MLPs that stand out as compelling candidates for investment consideration.
Energy Transfer: Harnessing Growth in the AI Infrastructure Boom
Energy Transfer (ET) presents investors with a strong combination of steady income and robust growth potential. The company’s strategic positioning within the Permian Basin grants it access to some of the most cost-effective natural gas supplies in the United States, a key factor underpinning its growth trajectory.
The firm is executing several significant pipeline projects aimed at facilitating natural gas transportation from the Permian Basin to various markets. Among these are the Desert Southwest Pipeline, intended to service the Arizona and New Mexico regions, and the Hugh Brinson Pipeline, which caters to the Texas market. Beyond regional infrastructure, Energy Transfer has forged direct agreements with prominent data center operators and developers—such as Oracle, Fermi, and Cloud Burst—to provide natural gas, fueling the expanding artificial intelligence (AI) technology sector.
Looking ahead, the company plans to allocate approximately $5 billion towards growth capital expenditures next year, underscoring its commitment to expanding infrastructure and capacity.
Financially, Energy Transfer offers an attractive dividend yield of approximately 8.2%, with expectations to increase distributions at a rate between 3% and 5% annually. Valuation metrics place the stock at a forward enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of 7.5 times, based on 2026 estimated EBITDA of $17.2 billion. This suggests the stock is notably undervalued relative to its peers and future cash generation potential.
Western Midstream Partners: A High-Yield Pick with Strong Financial Stability
Investors prioritizing income may find Western Midstream Partners (WES) particularly appealing. The partnership yields a substantial 9.2% dividend, supported by a target of mid- to low-single-digit annual growth in distributions.
Far from a distressed entity, Western Midstream boasts one of the strongest balance sheets within the midstream sector, with a conservative leverage ratio of 2.8 times as of the latest quarter.
Strategically, the company has recently completed the acquisition of Aris Water Solutions, which specializes in produced water infrastructure—a segment increasingly important in oil and gas operations. Western Midstream is also actively constructing a produced water pipeline intended to connect with its North Loving natural gas facilities currently undergoing expansion. Operations for these projects are planned to commence in the first half of 2027, which is expected to drive incremental growth over time.
From a valuation standpoint, Western Midstream trades at a forward EV/EBITDA multiple of 8.1 times, based on projected 2026 EBITDA of $2.79 billion, signaling attractive entry points for income-focused investors.
Genesis Energy: A Turnaround Story with Growth Potential
Genesis Energy (GEL), while offering a more modest dividend yield of 4.2%, represents a compelling turnaround narrative within the midstream industry.
Earlier this year, the company divested its soda ash business for $1.4 billion. The proceeds facilitated the retirement of costly preferred units and significant reduction in debt levels, which in turn improved the company's financial health and lowered interest costs. The firm reported generating excess cash flow in the third quarter, using it to further deleverage, with continued debt reductions expected through the fourth quarter.
Growth prospects are linked to expansion projects in offshore Gulf of Mexico oil fields connected to Genesis’s pipeline infrastructure. Specifically, the Shenandoah and Salamanca developments are progressing, with the operator of Shenandoah having completed four phase-one wells, collectively reaching the target output of 100,000 barrels per day. The operator aims to increase this to 120,000 barrels per day by late 2026 or early 2027, with a possible upside of an additional 10,000 to 20,000 barrels daily.
Similarly, Salamanca’s initial three wells approached 40,000 barrels per day, with expectations they could reach as high as 60,000 barrels per day. The company’s management has indicated that if production approaches these goals, it could realize an incremental $160 million in segment operating profits, surpassing the $90 million baseline guaranteed by take-or-pay contracts.
This potential growth is significant given the company's approximately $586 million annualized operating profit run rate noted in the third quarter, with additions largely expected to translate into free cash flow due to underutilized pipeline capacity. Enhanced cash flows would support further debt reduction.
That said, Genesis carries a higher risk profile relative to peers, with leverage at around 5.4 times, but its collective restructuring and growth initiatives may offer meaningful upside potential.
Conclusion
Midstream MLPs centered on pipeline operations present a spectrum of investment opportunities that offer varying balances of yield, growth potential, and financial stability. Energy Transfer combines strong yield with growth fueled by the AI infrastructure sector; Western Midstream presents highest yields supported by solid financial footing and expansion into produced water infrastructure; while Genesis Energy offers a promising turnaround story with incremental growth linked to expanding Gulf of Mexico oil production.
Investors considering allocating $1,000 in this sector can weigh these companies based on their income needs, risk tolerance, and appreciation outlook. As the midstream sector continues to evolve with capital investment and operational shifts, valuation levels observed today reflect potentially compelling entry points.