Investing in pipeline stocks

Dividends are common perks, but protests can sideline projects and hurt profits.

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Investing in pipeline stocks is a unique opportunity to buy into the profitability of the oil and gas sector. But public opposition to pipeline infrastructure has the potential to interrupt projects and halt construction efforts. Read on to find out more about investing in pipeline stocks, including the risks and returns.

What are pipelines?

Pipelines are the physical structures responsible for transporting natural gas, crude oil, natural gas liquids, petroleum and petrochemicals from production centers to refineries, docks, terminals, power plants and consumers. They are a core component of the oil and gas industry and without their infrastructure, the system would grind to a halt.

Pipelines can be divided into four subcategories:

  • Gathering. These lines gather products from wells and transport them to processing plants.
  • Feeder. These lines transport oil, gas and liquids from storage tanks and processing plants to transmission pipelines.
  • Transmission. These large pipelines can span more than three feet wide and are responsible for carrying oil, gas and natural gas liquids across state lines and country borders for processing or storage.
  • Distribution. These pipelines are responsible for distributing natural gas to homes and businesses.

Pipeline stocks are stocks from companies that build, operate or maintain energy pipelines. Generally, there are two types of companies in this space: pipeline corporations and master limited partnerships (MLPs). Both are viable investment opportunities.

Why invest in pipeline stocks?

From 2019 to 2025, global oil production is expected to grow massively. And this growth will require more pipeline infrastructure.

While it’s true that we’ve begun to experience a global shift towards green energy, we’re far from eliminating our reliance on gas and oil. Plus, many pipeline companies pay dividends, making pipeline stocks a practical portfolio addition for buy and hold investors.

Risks of investing in pipeline stocks

The profitability of pipeline companies depends on the price of oil and gas. And oil and gas prices can be unstable.

Pipeline companies get paid based on the amount of gas and oil they move. When the price of these commodities falls, drilling companies cut back their activity, well output declines and less oil and gas flows through pipeline infrastructures.

Another risk for Australian investors to consider before buying into pipeline stocks is the rising opposition to new infrastructure. Investors should be aware of the environmental risk it poses.

Namely, pipeline leaks have the potential to contaminate water supplies. Pipeline protests can sideline construction efforts and delay projects, effectively reducing productivity and decreasing profits for companies and shareholders alike.

Pipeline stocks

There are many stock options for Australian investors ready to buy into the pipeline category.

What ETFs track the pipeline category?

Exchange-traded funds that include pipeline companies typically track multicap energy master limited partnerships (MLPs).

  • Alerian MLP ETF (AMLP)
  • Energy Select Sector SPDR Fund (XLE)
  • ETRACS Alerian MLP Infrastructure Index ETN (MLPB)
  • Global X MLP & Energy Infrastructure ETF (MLPX)
  • iShares Global Energy ETF (IXC)
  • UBS E-TRACS Alerian MLP Infrastructure ETN (MLPI)

Compare trading platforms

Before you can invest in pipeline stocks, you’ll need a brokerage account in Australia. Review your options below.

Name Product Standard brokerage fee Inactivity fee Markets International
eToro Share Trading (US stocks)
US$0
US$10 per month if there’s been no login for 12 months
US shares, ETFs
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
ThinkMarkets Share Trading
$8
No
ASX shares, ETFs
No
Limited offer: Get 5 free ASX trades when you open a new account with ThinkMarkets before June 30, 2021 (T&Cs apply).
Buy and sell CHESS sponsored ASX shares with $0 brokerage on your first 5 trades. Only $8 flat fee brokerage thereafter, plus enjoy free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
⭐ Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until July 31, 2021 when you join Bell Direct.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Saxo Capital Markets (Classic account)
$6.99
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Acess 19,000+ stocks on 37 exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

Australian investors seeking a dividend-paying, long-term investment may find value in pipeline stocks. But profits in this category depend on the price of oil and gas and may be impacted by public opposition.

Before you invest, find the right brokerage account that fits your investment goals.

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