It happened in 2008 and 2009, and despite a huge rally off the bottom, many companies that investors are very familiar with have taken a beating. Needless to say, the ones that have been beaten down the most are in sectors that are struggling the most. Energy continues to lag badly in 2020, but many are optimistic things will improve next year.
Not too many years ago, the energy master limited partnerships (MLPs) were red hot. Oil was trading much higher than today, and the top companies in the business were handing out big capital gains and paying big distributions to unitholders as well. It all ended as oil prices plunged and investors fled the sector.
We screened our 24/7 Wall St. research database looking for well-known companies in the energy MLP universe that are likely to survive the current troubles and could very well offer patient investors some huge total return over the next year or so. In addition, we made sure the distributions for the companies were still intact, and while all are rated Buy at top Wall Street firms, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
While MLP distributions screen as yield similar to traditional stocks, there are some tax ramifications on an individual issuer basis and these should be considered a yield-equivalent rather than a true dividend. The distributions are generally sourced partly from income, but they may also include gains, come from cash flow and may also be considered a return of capital that comes with certain tax advantages.
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Enable Midstream
This company provides solid distributions with serious upside potential. Enable Midstream Partners L.P. (NYSE: ENBL) is primarily engaged in oil and natural gas services, including gathering, processing, transportation and storage. The company was formed to own the energy midstream assets of CenterPoint Energy and OGE Energy, which combined own Enable’s general partner.
Enable’s assets include approximately 13,900 miles of natural gas, crude oil, condensate and produced water gathering pipelines, approximately 2.6 billion cubic feet per day of natural gas processing capacity, approximately 7,800 miles of interstate natural gas pipelines (including Southeast Supply Header, of which Enable owns 50%), approximately 2,300 miles of intrastate natural gas pipelines and eight natural gas storage facilities comprising 84.5 billion cubic feet of storage capacity.
Investors receive a massive 13.43% distribution. Wolfe Research has an $8 price target, and the Wall Street consensus target is $5.56. The shares traded around the $5 level late last week.
Energy Transfer
This top MLP is a very safe play for investors looking for energy exposure and income. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.
This publicly traded limited partnership has core operations that include complimentary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (NGLs) and refined product transportation and terminaling assets; NGL fractionation; and various acquisition and marketing assets.
Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG, as well as the general partner interests, the incentive distribution rights and 28.5 million common units of Sunoco, and the general partner interests and 39.7 million common units of USA Compression Partners.
Investors finally received the long-anticipated distribution cut in late October, which was a stunning 50%. However, investors still receive a stellar 11.51%. The Raymond James price objective is $9, and the consensus figure is $9.95. Energy Transfer has been trading north of $5 recently.
Genesis Energy
This one remains reasonably well received on Wall Street. 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. The company’s Offshore Pipeline Transportation segment engages in offshore crude oil and natural gas pipeline transportation and handling operations, as well as in the deepwater pipeline servicing in the southern Keathley Canyon area of the Gulf of Mexico.
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This segment owns interests in approximately 1,422 miles of crude oil pipelines located offshore in the Gulf of Mexico. Its Sodium Minerals and Sulfur Services segment provides sulfur-extraction services to refining operations, and it operates storage and transportation assets. This segment provides services to 10 refining operations and sells sodium hydrosulfide and caustic soda to industrial and commercial companies involved in the mining of base metals.
The company’s Onshore Facilities and Transportation segment provides onshore facilities and transportation services to Gulf Coast crude oil refineries and producers by purchasing, transporting, storing, blending and marketing crude oil and refined products. It operates a suite of approximately 200 trucks, 300 trailers, 397 railcars and terminals and tankage with 4.3 million barrels of storage capacity in various locations along the Gulf Coast. This segment also transports crude oil and carbon dioxide. It owns four onshore crude oil pipeline systems with approximately 460 miles of pipe located primarily in Alabama, Florida, Louisiana, Mississippi and Texas, as well as two carbon dioxide pipelines with approximately 269 miles of pipe. Its Marine Transportation segment offers waterborne transportation of petroleum products and crude oil in North America.
Investors receive an 11.61% distribution, after a 73% cut that was made back in March of this year. The $10 Royal Bank of Canada price objective is well above the $7.50 consensus target. Shares traded most above $5 this past week.
Noble Midstream Partners
This is one of the highest yielding midstream plays, and it looks to have solid upside as well. Noble Midstream Partners L.P. (NYSE: NBLX) primarily provides natural gas gathering, processing and water services in Colorado and Texas. Its assets reside in two of the most resilient oil basins in the United States: the DJ Basin in Colorado and the Delaware Basin in Texas.
The company owns and operates the Advantage Pipeline, a 16-inch common carrier crude oil pipeline serving the southern Delaware Basin (assets owned by a joint venture with Plains All American Pipeline).
Noble Energy recently was purchased by Chevron, and Noble Midstream announced it has entered into a definitive agreement to acquire the partnership’s incentive distribution rights and substantially all of Noble Energy’s remaining midstream interests for $1.6 billion.
The company also cut the distribution 73% back in March, but it still pays a 15.76% distribution. Piper Sandler has set an $11 price target. The consensus target is $8.60, and shares have traded near $8 for the past month.
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Plains All American Pipeline
This remains a top MLP pick across Wall Street. Plains All American Pipeline L.P. (NYSE: PAA | PAA Price Prediction) is primarily engaged in midstream crude oil activities, including transportation, gathering, marketing and terminaling.
Top analysts, including the Goldman Sachs team, feel the company deserves a premium valuation given its leverage to the Permian and attractive organic growth backlog. The company owns an extensive network of pipeline transportation, terminaling, storage and gathering assets in key crude oil and NGL producing basins and transportation corridors and at major market hubs in the United States and Canada. On average, Plains All American handles more than 6 million barrels per day of crude oil and NGL in its Transportation segment.
Investors still receive a solid 9.69% distribution. The TD Securities price objective is $13. The consensus target price is $11.32. Shares traded near $7.50 late in the week.
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It has been some time since we have covered the energy MLPs, and the sector has been in turmoil for almost a year. Again, we checked all of the distributions to make sure they were still intact, and while some seem inordinately high after the giant cuts that have been made, that is more a reflection of the very low dollar prices for the stocks.
It should be noted that any of these companies could always lower or even eliminate the payouts again, but with West Texas Intermediate crude seemingly finding a floor at the $40 a barrel level, and many across Wall Street positive on the prospects for energy in 2021 as the pandemic wanes as a COVID-19 vaccine is available, the prospects here look very good for aggressive growth and income investors looking to take a contrarian shot.
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