If any sector took a beating in 2020, it is energy, and the energy master limited partnerships (MLPs) in particular really have been the whipping boy. While the benchmark price of oil tends to weigh on the exploration and production companies, many of the top MLPs are in the transportation and storage business. Despite that crucial difference, these stocks were massacred last year, with many investors abandoning them entirely.
The key for many investors now should be the massive distributions that many of the top companies pay. In a world where yields are still near generational lows, those distributions make sense since the benchmark pricing for oil has rallied huge back over the $50 level for West Texas Intermediate, which is well off the historic spring 2020 lows.
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With energy coming back into favor, and many Wall Street firms positive on the sector for 2021, we screened the BofA Securities looking for the top companies and found four that income investors and those looking to add energy to portfolios should consider.
While shares of all these MLPs are rated Buy at BofA Securities, 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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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 | EPD Price Prediction) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.
Enterprise Products Partners and Navigator Holdings recently announced that service has begun on a new 30,000-ton refrigerated ethylene storage tank at the ethylene export terminal, which is owned 50/50 by affiliates of the two companies. Navigator Atlas, a 21,000 cubic meter ethylene gas carrier, became the first vessel to utilize the new service when it was loaded at the facility located in Morgan’s Point, Texas on December 23, 2020. The tank will facilitate faster loading, increasing efficiency for the terminal’s customers and enabling the terminal to reach an annual nameplate export capacity of a million tons per year.
Investors receive an 8.35% distribution. The BofA Securities price target for the shares is $24, and the Wall Street consensus target is $25.92. Enterprise Products Partners stock closed Friday’s trading at $21.56 per share.
Energy Transfer
This top MLP is a very safe way 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.
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Energy Transfer investors finally received the long-anticipated distribution cut in late October, which was a stunning 50%. However, at $0.61 per unit, investors are still paid a stellar 9.38%.
BofA Securities has an $11 price target, while the posted consensus target is $10.26. Friday’s closing price for Energy Transfer stock was $6.50.
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MPLX
This company 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.
Top analysts feel that the company’s proposed sale of its Javelina fractionation facility in Corpus Christi to Howard Energy Partners, a private midstream company, represents a “solid first step” in the company’s ongoing effort to divest noncore gathering and processing assets. MPLX intends to focus more on its Marcellus/Utica and Permian assets.
MPLX stock investors receive an 11.96% distribution. The $29 BofA Securities price target compares with a lower $26.25 consensus target and a Friday closing print of $23.00 a share.
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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) 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 7.91% distribution. BofA Securities has set a $13 price objective. The consensus figure is lower at $12.09, and Plains All American Pipeline ended last week at $9.10 per share.
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It is important to remember that MLP distributions can contain a return of principal, and investors receive income information each year via K-1 documents. With that said, these are four of the very best companies in the industry, and they are great total return ideas for investors looking to initiate or add positions in the energy sector.
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