Energy MLPs Cheapest in Years: Buy These 4 Now

At some point over the next year, we will witness a historic event: U.S. crude oil production will exceed 10 million barrels per day, a record last seen in November of 1970. While oil prices have remained range-bound, the share prices for the top energy master limited partnerships (MLPs) have been hammered to some of the lowest levels in years. In fact, so low that the spread between the yield on the Alerian MLP index and the 10-year Treasury is much higher than the trailing 15 years average.

While the top MLPs are surely affected by price changes in oil, the bottom line is they are more involved in overall usage, logistics and transportation. Many on Wall Street, including the analysts at UBS, feel that the second quarter of 2017 will be the trough from MLP earnings, and with yields at very tempting levels, the companies are solid buys now.

UBS has four top MLPs to buy now, and they all make sense for accounts seeking safe and dependable income.

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 its distribution 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 against some of the wilder swings of the commodities that it trades in.

One reason many analysts may like the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it a relatively less risky MLP. The distributions have grown for several quarters, and last quarter Enterprise Products Partners announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.42 per common unit, or $1.68 per unit on an annualized basis.

Investors are paid a very solid 6.47% distribution. The UBS price target for the stock is $36, and the Wall Street consensus target is $32.60. Shares closed Thursday at $25.97.

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MPLX

This company reported very solid numbers but may be more off the radar for some investors. MPLX L.P. (NASDAQ: MPLX) is a diversified, growth-oriented MLP formed in 2012 by Marathon Petroleum to own, operate, develop and acquire midstream energy infrastructure assets. It is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids (NGLs); and the transportation and storage of crude oil and refined petroleum products.

The company made a very well timed and strategic purchase of MarkWest Energy last year for approximately $1.28 billion. The deal combined MarkWest, the second-largest processor of natural gas in the United States and largest processor and fractionator in the Marcellus and Utica shale plays, with MPLX. The combination created one of the largest MLPs, which is expected to generate a mid-20% compound annual distribution growth rate through 2019.

MPLX unitholders receive a very solid 6.7% distribution. UBS has a $44 price target and the consensus target is $42.87. Shares closed Thursday at $33.54.

Energy Transfer Partners

This company merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.

The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.

The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.

Energy Transfer unitholders receive a massive 11.94% distribution. The $29 UBS price target compares with the consensus target of $27.30. The shares closed Thursday at $18.42.

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Targa Resources

This top energy MLP has had a string of positives lately. Targa Resources Corp (NYSE: TRGP) is a leading provider of midstream services and is one of the largest independent midstream energy companies in North America. Targa owns, operates, acquires and develops a diversified portfolio of complementary midstream energy assets.

The company is primarily engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling NGLs and NGL products, including services to liquefied petroleum gas (LPG) exporters; gathering, storing and terminaling crude oil; storing, terminaling and selling refined petroleum products.

Investors are paid a very nice 8.25% distribution. The UBS price objective is $59. The consensus target price is $53.35, and shares closed most recently at $44.

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While it is important to remember that MLP distribution can contain return of capital, these top companies remain solid picks in a low-yield environment, especially when you consider the underperformance of energy during the first half of 2017 and the solid prospects for the rest of the year and beyond.