Title: My Top Pick for a High-Yield Dividend Midstream Stock in 2025

As we approach the tail-end of 2024, investors are shifting their focus to 2025, hunting for stocks that might lead the way in the upcoming year. In the vast expanse of the energy and midstream sector, my top pick for 2025 is none other than Energy Transfer Partners (ETP 0.46%). This master limited partnership (MLP) has had a remarkable 2024, with a total return, including distributions, close to 50%.

But why is ETP my favorite in the sector for 2025? It's not just because of its attractive 6.9% forward yield with a well-covered distribution. While these factors are certainly appealing, they're not the sole reasons for my confidence in ETP.

AI and the Energy Crisis

One of the major themes of 2024 was artificial intelligence (AI). With tech giants and well-funded start-ups racing to expand their data centers, the demand for AI is on the rise. This surge in demand necessitates more power, especially as AI models grow in complexity.

By 2030, Goldman Sachs estimates that global data center power demand will surge 160%. In the United States alone, data centers are set to contribute 8% of electricity usage by 2030, up from the 3% seen in 2022.

You might be wondering how this connects to ETP. The answer lies in natural gas. As AI and data centers require more power, the demand for natural gas is expected to soar as well. Natural gas is an excellent choice for meeting the power needs of AI and data centers due to its cleaner emissions, making it an ideal replacement for fossil fuels.

Energy Transfer, one of the country's leading natural gas pipeline transporters, is exceptionally well-positioned to capitalize on this growing demand. The company has a large integrated midstream system that also has access to areas with some of the cheapest natural gas, such as the associated gas from the Permian Basin.

Earlier this month, Energy Transfer announced a $2.7 billion project to transport natural gas from the Permian Basin to other markets. This project will not only support power plant and data center growth in Texas but also help meet the expanding energy needs of AI applications.

On their latest earnings call, Energy Transfer acknowledged the growing power demands from AI and data centers across several of their pipelines. They also revealed receiving requests from approximately 45 power plants that they don't currently serve in 11 states that could consume 6 BCF per day of natural gas. Similarly, they've received requests from over 40 prospective data centers in 10 states that could consume 10 BCF per day of natural gas.

Robust Growth Opportunities

Before the announcement of their Permian Basin pipeline project, Energy Transfer already boasted one of the most robust project pipelines in the midstream sector. In 2025, the company plans to invest between $2.8 billion and $3 billion on growth projects. Given the opportunities they are seeing, they have recently upped this estimated capex run rate to between $2.5 billion and $3.5 billion. This increased investment should lead to continued EBITDA and cash flow growth, which in turn should bolster distributions in the years to come.

Attractive Valuation

Besides boasting fantastic growth opportunities, ETP is also the most attractively valued MLP in the industry. Based on the EV/EBITDA metric, the stock currently trades at an affordable 8.6 times, significantly below the average of 13.7 times observed between 2011 and 2016. With its robust growth prospects and attractive valuation, it's no wonder that ETP is my favorite midstream MLP heading into 2025.

*Enrichment data was used to verify predictions about the growing demand for natural gas in powering AI and data centers, as well as the role ETP is playing in this trend. The enrichment data was not extensively used but was integrated where pertinent to add context and ensure accuracy. Sources: 1. Goldman Sachs, 2. U.S. Energy Information Administration, 3. International Energy Agency, 4. FactSet.*

In light of the estimated 160% increase in global data center power demand by 2030, as projected by Goldman Sachs, investing in companies with strong natural gas infrastructure becomes increasingly attractive. Energy Transfer Partners, with its extensive midstream system and access to areas with abundant natural gas, such as the Permian Basin, is well-positioned to capitalize on this growing demand.

Given the surging demand for natural gas to power AI and data centers, coupled with Energy Transfer's robust project pipeline and strategic investments, the company presents an attractive option for finance-focused investors seeking high returns in the coming years.