Oil was absolutely hammered in November, with the price of West Texas Intermediate crude dropping a stunning 20% in just over a month’s time. After that massive drop, investors have seen a huge reversal of the black gold, and the Organization of the Petroleum Exporting Countries (OPEC) stated Wednesday that it would stay with an output increase of 400,000 barrels per day. In addition, the cartel’s technical committee cut estimates for a surplus in the first quarter, citing little evidence of Omicron affecting demand going forward.
The good news for investors is that the top energy master limited partnerships (MLPs) offer a safer way to play the sector. They pay out some sizable distributions and still offer investors some attractive entry points.
We screened our 24/7 Wall St. energy research database looking for the highest yielding energy MLPs that also have Hold or Buy ratings from major Wall Street firms, and found five that look extremely appealing now, especially for frustrated income investors who have a higher risk tolerance. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Antero Midstream
With shares trading under $10 apiece, this very well-run company offers a huge total return package. Antero Midstream Corp. (NYSE: AM | AM Price Prediction) owns, operates and develops midstream energy infrastructure. It operates through two segments.
The Gathering and Processing segment includes a network of gathering pipelines and compressor stations that collects and processes production from Antero Resources’ wells in West Virginia and Ohio.
The Water Handling segment delivers fresh water and offers other fluid handling services, such as wastewater transportation, disposal and treatment, as well as high-rate transfer services.
Antero Midstream stock investors receive a giant 9.01% distribution. Wells Fargo has an Equal Weight rating and recently lifted its $10 target price to $12. The analysts’ consensus target is just $8.94, but the shares ended Monday trading at $9.94 apiece.
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Enterprise Products Partners
This is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids (NGLs) fractionation, import and export terminaling, and offshore production platform services.
The company has four reportable business segments: Natural Gas Pipelines and Services, NGL Pipelines and Services, Petrochemical Services and Crude Oil Pipelines and Services.
One reason many analysts like the stock might be its distribution coverage ratio. This ratio is well above 1 times, making it relatively less risky among the MLPs.
Investors receive a 7.84% distribution. The analysts at Goldman Sachs have set a $26 price target on the Buy-rated stock. The consensus target is higher at $28.30. Enterprise Products Partners stock closed on Wednesday at $22.88 a share.
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Magellan Midstream Partners
This top midstream MLP that checks in high on the distribution list. Magellan Midstream Partners L.P. (NYSE: MMP) engages in the transportation, storage and distribution of refined petroleum products and crude oil in the United States.
The company operates refined products pipelines that transport gasoline, diesel fuel, aviation fuel, kerosene and heating oil to refiners, wholesalers, retailers, traders, railroads, airlines and regional farm cooperatives, as well as to end markets, including retail gasoline stations, truck stops, farm cooperatives, railroad fueling depots, military bases and commercial airports.
The company also provides pipeline capacity and tank storage services, as well as terminaling, ethanol and biodiesel unloading and loading, additive injection, custom blending, laboratory testing and data services to shippers. In addition, Magellan Midstream Partners owns and operates crude oil pipelines and storage facilities as well as marine terminals located along coastal waterways that provide distribution, storage, blending, inventory management and additive injection services for refiners, marketers, traders and other end users of petroleum products.
Investors are paid an 8.72% distribution. Morgan Stanley has an Equal Weight rating on Magellan Midstream Partners stock to go with its $54 price target. That compares with a consensus target of $53.60 and Wednesday’s final trade at $47.36 per share.
MPLX
This is the top holding for the Alerian MLP energy exchange-traded fund. MPLX L.P. (NYSE: MPLX) is primarily engaged in crude oil and refined products transportation and terminaling in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. MPLX was formed by independent U.S. refiner Marathon Petroleum.
The company’s assets include a network of crude oil and refined product pipelines; an inland marine business; light-product terminals; storage caverns; refinery tanks, docks, loading racks and associated piping; and crude and light-product marine terminals. MPLX also owns crude oil and natural gas gathering systems and pipelines, as well as natural gas and NGL processing and fractionation facilities in key U.S. supply basins.
Investors receive a handsome 9.18% distribution. Wells Fargo’s Overweight rating comes with a $35 price target. The $34.76 consensus target for MPLX stock is also above Wednesday’s closing price of $30.29 a share.
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NuStar Energy
This is an off-the-radar idea with a huge payout for investors. NuStar Energy L.P. (NYSE: NS) engages in the terminaling, storage and marketing of petroleum products in the United States and internationally. The company operates in three segments.
Its Pipeline segment transports refined products, crude oil and anhydrous ammonia. The Storage segment owns terminal and storage facilities, which offer storage, handling and other services for petroleum products, crude oil, specialty chemicals, renewable fuels and other liquids. This segment also provides pilotage, tug assistance, line handling, launch, emergency response and other ship services.
The Fuels Marketing segment engages in bunkering operations in the Gulf Coast, as well as blending operations and the purchase of petroleum products for resale.
Investors receive a generous 9.68% distribution. UBS has a Buy rating and a $19 price target on NuStar Energy stock. The posted consensus target is $18.80, and the closing share price on Wednesday was reported at $16.42.
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These five top stocks offer reasonably safe and reliable distributions, plus the companies are major players in the energy infrastructure arena. Those looking for solid total return potential can do well owning these MLP leaders. It is important to note that MLP distributions may contain return of principal. Those looking to avoid the pesky K-1s can always purchase shares in the ALPS Alerian MLP exchange-traded fund. Investors receive a 1099 form instead of a K-1.
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