Rapid urbanization, increased industrial activity, transportation electrification, and data center expansion driven by AI adoption could continue boosting global energy demand for years. Within this favorable environment, two energy stocks warrant close attention.
This midstream energy giant, though not a flashy name, offers one of the market’s best risk-reward profiles and a high dividend yield. Note: Investing in this Master Limited Partnership (MLP) requires handling Schedule K-1 tax forms.
Following its last expansion cycle, ET has strengthened its balance sheet: After cutting distributions in 2020 to reduce leverage, it repaid debt and funded growth through free cash flow. Leverage now sits at the low end of its target range. Approximately 90% of EBITDA comes from fee-based services (immune to commodity volatility), with most contracts being take-or-pay (customers pay regardless of service usage), ensuring stable recurring cash flow to support distributions and projects.
ET currently offers a 7.5% forward yield with robust coverage—Q1 distributable cash flow coverage stood at 2.1x. The company has raised distributions for 13 consecutive quarters, with management targeting 3%-5% annual growth.
Now in growth mode, ET plans to increase capital expenditures from $3 billion last year to $5 billion this year, targeting 15% project returns. Key projects include: the Hugh Brinson natural gas pipeline, Lake Charles LNG, and a gas supply agreement with CloudBurst for AI data centers. Despite strong fundamentals, its forward EV/EBITDA multiple of 8 remains below its historical average and peers. Midstream MLPs traded at an average 13.7x EBITDA multiple from 2011-2016.
Global energy demand is projected to remain strong long-term, with renewables claiming a growing share—favoring companies like NPI. Yet, its shares have fallen over 35% in five years due to rising rates, leverage, and inflation, creating a value opportunity.
Amid improved macro conditions (declining rates and inflation) and three key project milestones—battery storage now operational, while Baltic Power and Hai Long near completion—NPI’s capex will decline over the next two years, significantly boosting cash flow. Adjusted EBITDA is expected to rise by CAD$600 million, with free cash flow increasing CAD$200 million.
The company operates 3.4 GW globally with 2.2 GW under construction, spanning Canada, Northern Europe, and the Taiwan region. Its diversified portfolio covers natural gas, wind, solar, and energy storage.
NPI has strengthened its balance sheet: Long-term debt dropped from a peak of CAD$7 billion in 2021 to CAD$6.1 billion. Lower interest rates (down from 5% in 2023 to 2.75%) reduced interest expenses, while liquidity stands at CAD$1.1 billion. Management guides 2025 adjusted EBITDA of CAD$1.3–1.4 billion (up 3%-11% YoY), with further cash flow growth expected in 2026-2027.
As its major projects commence operations within two years, cash flow growth and reduced risk should drive valuation recovery.
