Very Good News For Big Dividend Infrastructure Stocks

• Big dividend infrastructure stocks have surged recently.
• We discuss the two major catalysts for this surge.
• We also share several opportunities that remain very attractive in the space.

Big dividend infrastructure stocks, like the ones in the Cohen&Steers Infrastructure Fund (UTF , have boomed recently, as the chart below illustrates. Companies like Williams Companies (WMB , TC Energy (TRP , Enbridge (ENB , Kinder Morgan (KMI , ONEOK (OKE , DT Midstream (DTM , and Targa Resources (TRGP have surged in recent months.

In this article, I will discuss why the sector has boomed and some of my favorite places to invest in it moving forward.

The Good News For Big Dividend Infrastructure Stocks

Two primary factors are driving the infrastructure stock boom:

First, infrastructure stocks are often considered utility-like in nature and therefore serve as bond proxies. The majority of their cash flows come from assets that are either regulated or under long-term contracts, ensuring stable cash flows over time. This makes them comparable to bonds or utilities. Recently, long-term interest rates have declined due to expectations that the Federal Reserve would cut rates, which has now occurred. As interest rates drop, the net present value of the cash flows generated by these highly contracted and regulated assets increases, driving stock prices higher.

The second, more unique reason for the surge in midstream infrastructure stocks is the boom in artificial intelligence (“AI”). While leading AI stocks like Microsoft (MSFT , NVIDIA (NVDA , and Palantir (PLTR have soared in recent years due to growing demand for AI applications, the focus has recently shifted to the AI infrastructure space. The market now realizes that building the data centers needed to support AI-driven economic growth will require substantial energy.

Although AI companies like Microsoft and Amazon (AMZN are making efforts to power data centers with renewable energy — such as Microsoft’s recent deal with Brookfield (BAM (BN (BEP (BEPC and investments in nuclear power with Constellation Energy (CEG and Vistra (VST — natural gas is emerging as an essential energy source for these data centers.

Natural gas offers several advantages. First, it provides a more reliable power supply than renewables, as it is not dependent on the sun shining or wind blowing. While battery storage can supplement renewables by providing a more consistent source of power for data centers, it adds extra cost and complexity to the process. In contrast, natural gas power plants offer a straightforward power solution for data centers. Additionally, natural gas power can be quickly ramped up to meet sudden spikes in electricity demand, which is essential for managing the complex workloads of AI models. In contrast, this level of flexibility is more challenging to achieve with renewable energy and even with nuclear power. Natural gas is also relatively inexpensive and cleaner than other fossil fuels like oil and coal, making it an attractive choice for companies that want to balance reliability and flexibility with environmental considerations. As a result, it is expected that natural gas demand will grow considerably in the years to come.

This anticipated growth in natural gas demand has been a significant boost for midstream infrastructure companies, many of which have extensive natural gas infrastructure across North America. Furthermore, numerous existing and planned data centers are located near this infrastructure, making these companies well-positioned for growth in the coming years while also giving them a moat of sorts.

Investor Takeaway

So, what are the best ways to invest in midstream infrastructure right now? Although many midstream infrastructure stocks have surged in recent months, some are still trading at near fair value, making them solid portfolio diversifiers — especially for income-focused investors. Among the options available, Enbridge (ENB and TC Energy (TRP stand out as both companies offer high yields, solid growth prospects, and well-diversified business models, making them attractive long-term investments.

However, some of the best opportunities may lie within the master limited partnership (AMLP part of the midstream sector. While MLPs can deter some investors — particularly institutional funds that prefer C corporations — their unique structure also creates opportunities for those willing to deal with their K1s.

I particularly like Energy Transfer (ET , which has significant natural gas and NGL assets, and Enterprise Products Partners (EPD , which offers strong diversification across the midstream sector. Western Midstream (WES is another solid option because – though its assets are not located near current or planned data centers – it stands to benefit from the broader increase in natural gas demand.

Brookfield Infrastructure Partners (BIP (BIPC is another compelling infrastructure opportunity right now. It is involved not only in natural gas infrastructure, but also in data center infrastructure, positioning it to benefit significantly from the AI infrastructure boom.

Moreover, as demand for natural gas rises, it will likely have a ripple effect across the broader energy sector as growing natural gas prices (due to strong data center demand) may make oil more attractive for certain applications currently powered by gas, further driving demand for oil. As the saying goes, a rising tide lifts all boats, and I believe now is an excellent time to invest in midstream infrastructure and energy (XLE in general, given that in many cases energy stock prices have lagged the broader market.