One reason that investors who look for income have long cherished energy master limited partnerships (MLPs) is that not only do they pay solid and sometimes large quarterly distributions, but the top companies also consistently raise those distributions. With the price of oil up solidly since the lows posted earlier this year, the sector has turned up nicely for investors, and the darkest days appear to be over.
In a recent research note from Kristina Kazarian and her outstanding team at Deutsche Bank, four top MLPs that recently raised the distributions paid to shareholders are highlighted. The positives behind companies that do increase payouts are numerous, but clearly it shows consistent and perhaps improving cash flow.
Antero Midstream
This top company posted a serious increase for its shareholders. Antero Midstream Partners L.P. (NYSE: AM) owns, operates and develops midstream energy assets. Its assets include 8-inch, 12-inch, 16-inch and 20-inch high and low pressure gathering pipelines and compressor stations that collect natural gas and oil and condensate from wells in the Marcellus Shale in West Virginia and the Utica Shale in Ohio, as well as water handling and treatment assets.
As of December 31, 2015, the company’s Marcellus and Utica Shale gathering systems comprised 182 miles and 110 miles of pipelines, and the water handling systems include 184 miles and 75 miles of pipelines.
The company increased the distribution to shareholders to $0.235 per share, payable quarterly. That is a 31% increase compared to 2015 and a 7% increase sequentially. Based on current pricing, Antero Midstream investors are now paid a 3.98% distribution.
The Thomson/First Call consensus price target for the stock is $28.65. The shares closed Tuesday at $23.61, up over 6% on the day.
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Enterprise Products Partners
This is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, recently raised the distribution by 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating it against some of the wilder swings of the commodities that it trades in.
One reason many analysts may have a liking for the stock might be its distribution coverage ratio. That ratio is well above one times, making it relatively less risky among the MLPs. The company’s distributions have grown for several quarters, and recently Enterprise Products increased the quarterly cash distribution paid to partners to $0.395 per common unit, or $1.58 per unit on an annualized basis.
This is the 56th distribution hike since the company’s initial public offering in 1998. Also, this is the 47th time that the company has increased its quarterly payout. The distribution signifies a 5.3% increase over the distribution in the first quarter of 2015.
Enterprise Products investors are now paid very solid 6.03% distribution. The consensus price target is set at $31.42. Shares closed Tuesday at $26.19, up 5.25% for the day.
Genesis Energy
This is another top company that has fought its way through the sector trouble. Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the oil and gas industry in the Gulf Coast region of the United States.
Its Onshore Pipeline Transportation segment transports crude oil and carbon dioxide (CO2). This segment owns four onshore crude oil pipeline systems with approximately 500 miles of pipe located primarily in Alabama, Florida, Louisiana, Mississippi and Texas, as well as CO2 pipelines with approximately 270 miles of pipe. The company’s Offshore Pipeline Transportation segment transports crude oil and owns various offshore crude oil pipeline systems with approximately 1,200 miles of pipe located offshore in the Gulf of Mexico.
Genesis recently announced that it will pay a regular quarterly distribution of $0.6725 per common unit for the quarter ended March 31, 2016. The distribution will be paid on May 13, 2016, to common unitholders of record at the close of business on April 29, 2016. This distribution represents an increase of approximately 10.2% over the first quarter 2015 quarterly distribution of $0.61 per unit, and an approximate 2.7% increase over the distribution paid with respect to the fourth quarter of 2015.
Genesis shareholders are now paid an outstanding 8.02% distribution. The consensus price objective is $38.17. The stock closed Tuesday at $33.53 per share.
Tallgrass Energy Partners
This rounds out the four picks, and it also offers investors a solid and well-covered distribution. Tallgrass Energy Partners L.P. (NYSE: TEP) provides crude oil transportation to customers in Wyoming, Colorado and the surrounding regions through Pony Express, which owns the Pony Express System, a crude oil pipeline commencing in Guernsey, Wyo., and terminating in Cushing, Okla., and includes a lateral in northeast Colorado that commences in Weld County and interconnects with the pipeline just east of Sterling.
In addition, the company provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through the Tallgrass Interstate Gas Transmission system, a FERC-regulated natural gas transportation and storage system located in Colorado, Kansas, Missouri, Nebraska and Wyoming, and the Trailblazer Pipeline system, a FERC-regulated natural gas pipeline system extending from the Colorado and Wyoming border to Beatrice, Nebr.
The company recently declared a quarterly cash distribution of $0.705 per common unit for the first quarter of 2016, or $2.82 on an annualized basis. This represents a 35.6% increase from the first quarter 2015 distribution of $0.52 per common unit and a 10.2% sequential increase from the fourth quarter 2015 distribution of $0.64 per common unit. It is the company’s 11th consecutive increase since its initial public offering in May 2013.
Tallgrass investors are now paid a stellar 7.21% distribution. The consensus price target stands at $45.07. The shares closed Tuesday at $39.09 apiece.
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All four of these top stocks make good sense for investors looking to play a second half 2016 and 2017 sector rebound. Should oil languish in the recent trading range, they should still offer stability, as well as increases in the distributions. It is important to remember that MLP distributions may include return of capital.
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