Three trends could trip up oil and gas pipeline firms. Here’s how to trade them

Pipeline and energy infrastructure companies face operational challenges in the coming years even as U.S. oil drilling recovers and a natural gas export boom gets underway, consulting firm Bain & Co. says in a new report.

While there is demand for new infrastructure, three trends in the industry could trip up pipeline companies, Bain said in a report released Wednesday. Oil and gas drilling is subdued in some areas, contract renewals may lead to lower rates, and private equity competition is eating into profit margins.

This will make it harder for so-called midstream companies, which transport, store and process oil and gas, to squeeze profit out of their projects, according to Bain.

This matters to investors because investing in midstream companies became a source of reliable dividends as pipeline construction ramped up during the U.S. shale oil and gas boom. Pipelines and other infrastructure produce steady income, allowing midstream companies to ratchet up payouts to investors.

The 10-year average annual distribution growth for master limited partnerships, a common structure for energy infrastructure companies, was 6.8 percent through 2015, according to Alerian, which operates funds linked to MLPs.

Alerian MLP Index distribution growth

“There’s a starvation for yield right now because the 10-year [U.S. Treasury] is barely over 2 [percent]. Utility and REIT yields are really, really low. You can go buy energy infrastructure stocks that have 5.5, 6.5 percent yields that are growing,” Rob Thummel, portfolio manager at Tortoise Capital, told CNBC’s “Power Lunch” on Tuesday.