In early 2012, Kinder Morgan Inc (NYSE:KMI) completed its El Paso Corporation acquisition. This makes the company as one of the largest interstate natural gas pipeline operators in the country. Its assets span across many major resource plays, including the Barnett, Haynesville, Utica, Eagle Ford and Marcellus shales. It can bring production from all these places to market efficiently.
Kinder’s earnings break down as follows, nearly 18% is attributed to the products pipeline, 34% natural gas pipelines, 26% CO2 pipelines and 16% for the terminals segment. Kinder Morgan intends to invest about $3 billion in expansion and acquisitions in 2013, helping capitalizing on the key areas of the Eagle Ford and Haynesville shales.
ONEOK, Inc. (NYSE:OKE) is an Oklahoma-based natural gas utility paying a 3.6% dividend yield. ONEOK, Inc. (NYSE:OKE) gets over 80% of operating income from Oneok Partners LP (NYSE:OKS), while its other key revenue generator is its distribution segment, accounting for nearly 20% of operating income. ONEOK gathers, processes, stores and transports natural gas. ONEOK has plans to spend $4.5 billion through 2015 on growth projects, and like Williams plans grow to its dividend payment nicely over the near-term, by 65% through 2015.
Hedge fund trade
Going into 2Q, Williams had 41 hedge funds long the stock. Meanwhile, Kinder Morgan had an impressive 54 hedge funds long the stock, with billionaire Stephan Mandel’s Lone Pine Capital having the top position, worth $534 million.
TransCanada had only 12 hedge funds long the stock, but this was a 140% increase from the previous quarter. Worth noting is that billionaire Jim Simons of Renaissance Technologies had the largest position among major hedge funds, but worth only $28 million.
Bottom line
Williams has the best dividend yield…
And the company has some of the best prospects, with a key position in the Gulf of Mexico area. WIlliams already has a strong presence in the Gulf Coast, as well as assets in the Northwest U.S., thus, the Bluegrass Pipeline will allow the company to tap the fast growing resource plays in Ohio and Pennsylvania.
Meanwhile, it would not be a bad idea to check out Kinder Morgan given its size and scope, while TransCanada is also a solid investment opportunity if its Keystone XL pipeline is approved. TransCanada generated some $8 billion in revenue last fiscal year, but the Keystone pipeline has the potential to add $2 billion to $3 billion annually. Otherwise, TransCanada appears to be a bit expensive — trading at 24 times earnings compared to its 5-year average P/E of 19 times, and 3.8 times sales versus the 5-year average P/S of 3.1 times.
The article Why Make the Less Sexy Bet on Energy? originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan and ONEOK. The Motley Fool owns shares of Kinder Morgan. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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