The good thing about the length of the energy downturn is that it flushed out the poor companies and gave the good ones the opportunity to lower capital expenditures, cut distributions or both to aid struggling balance sheets. With the depth and length of the downturn factored in, it has become easier to see who survives and what the status of each company is now.

In a historically low and ongoing low interest rate environment, income investors have been penalized, and in many cases they have had to reach for yield. Many turned to energy master limited partnerships (MLPs) for income and stability and got hammered. We found three in the Merrill Lynch research database that appear to have very safe distributions, and all are rated Buy.

Enterprise Products Partners

This is one of the largest publicly traded MLPs and a leading North American provider of midstream energy services to producers and consumers. Despite the energy slump, Enterprise Products Partners L.P. (NYSE: EPD) recently raised the distribution 1%. Enterprise Products 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 against some of the wilder swings of the commodities that it trades in.

One reason why many analysts may like the stock is 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 Enterprise’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 investors receive a 6.07% distribution. Merrill Lynch recently raised its price target to $30 from $28. The Thomson/First Call consensus price target is $31.92. Shares closed Friday at $26.05.

Genesis Energy

This top company also has fought its way through the sector trouble. Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the 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 two 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.
The Refinery Services segment processes high sulfur gas streams to remove sulfur for refineries. It provides services to 10 refining operations located primarily in Texas, Louisiana, Arkansas, Oklahoma and Utah, and it sells the by-product sodium hydrosulfide and caustic soda to industrial and commercial companies involved in the mining of copper, molybdenum and other base metals, as well as in the production of pulp and paper.

The Marine Transportation segment offers waterborne transportation of petroleum products and crude oil in North America. It owns fleet of 71 barges, with a combined transportation capacity of 2.6 million barrels, and 33 push/tow boats. Its Supply and Logistics segment provides services primarily to Gulf Coast oil and gas producers and refineries through a combination of purchasing, transporting, storing, blending and marketing of crude oil and refined products, such as fuel oil, asphalt and other heavy refined products. This segment operates a suite of approximately 300 trucks, 400 trailers, 562 rail cars and terminals and tankage with 2.9 million barrels of storage capacity in various locations along the Gulf Coast.

Genesis shareholders receive an 8.55% distribution. The Merrill Lynch price target is $33, but the consensus price objective is $38.33. Shares closed Friday at $31.46.

Tallgrass Energy Partners

This rounds out the three picks and 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., that 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, Neb.

Investors receive a 6.37% distribution. The $47 Merrill Lynch price target is in line with the consensus of $47.36. The shares closed Friday at $44.27.

All three of these top picks make good sense for investors looking to play a second half 2016 and 2017 oil sector rebound. Should oil languish in the potential trading range, they should still offer stability. It is important to remember that MLP distributions may contain return of capital.

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