Energy
MLP Index Has First Positive Quarter Since 2014: 4 Top Stocks to Buy
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In what seems like a lifetime after nearly two years of down quarters, the Alerian energy master limited partnership (MLP) index just posted its first positive quarter since 2014. While the sector still lagged the overall market, energy and other income oriented groups, the positive showing is a feel-good print for investors, and it shows that after a long malaise things finally may be headed higher.
With bond proxies like the utility index printing all-time highs, and yields plunging to historic lows, the MLPs make good sense for income investors looking for yield but wanting to avoid the overbought sectors. We screened the Merrill Lynch research database and found four top companies that look very attractive now.
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. 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 very solid 5.45% distribution. The Merrill Lynch price target is $30, and the Thomson/First Call consensus target is higher at $32.58. Shares closed Tuesday at $29.00.
Genesis Energy
This company actually missed first-quarter numbers but remains a Merrill Lynch favorite. 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.
Shareholders receive an outstanding 7% distribution. Merrill Lynch has a $42 price target, and the consensus price objective is $39. The shares closed Tuesday at $38.43.
NuStar Energy
This company posted solid first-quarter numbers that beat on the bottom line but missed revenue estimates. NuStar Energy L.P. (NYSE: NS) is one of the largest independent liquids terminal and pipeline operators in the nation. It currently has approximately 8,700 miles of pipeline and 79 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids.
The partnership’s combined system has approximately 93 million barrels of storage capacity, and NuStar has operations in the United States, Canada, Mexico, the Netherlands (including St. Eustatius in the Caribbean) and the United Kingdom.
The company reported solid first-quarter 2016 earnings on the back of lower operating expenses and bigger contribution from the storage segment. The bottom line beat the Wall Street consensus estimate but was down from the year-ago quarter. Quarterly revenues came in lower than expectations and also decreased from the year-ago print. The decline in revenues was mainly attributable to lower throughput volumes from the pipeline segment and decreased revenues from product sales.
NuStar investors receive a 9.04% distribution. The $51 Merrill Lynch price objective is a bit higher than the $50 consensus target. Shares closed Tuesday at $48.45, down over 3% on the day.
Tallgrass Energy Partners
This is another favorite at Merrill Lynch that missed on first-quarter earnings estimates. 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, Wyoming, and terminating in Cushing, Oklahoma, 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, Nebraska.
Investors receive a 6.13% distribution. The $50 Merrill Lynch price target is less than consensus of $52.93. The shares closed Tuesday at $45.98.
Four solid companies to buy that paid good distributions. Investors should remember that MLP distributions can contain return of capital, but for now may be among the best income ideas.
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