Credit Suisse Raises Dividend and Return Expectations in Top MLPs

Targa Resources Corp. (NYSE: TRGP) posted solid numbers for the quarter, and expected future dividend coverage looks promising. With 30% dividend growth guidance for the next year, and dividend growth for the next two years of 23% and 22%, respectively, Credit Suisse is maintaining its target yield range at 3.00% to 3.25%. It raises its price target on the stock from $82 to $86. The Thomson/First Call estimate is $74.50. Investors receive a 3.1% dividend equivalent. Note that MLP distributions may contain return of principal.

Targa Resource Partners L.P. (NYSE: NGLS) also gets a boost from the solid quarter. The company’s fee-based portion of the business continues to exceed the Credit Suisse forecast, which has largely offset continued weakness in its commodity exposed operations. The growing fee-based portion of its business (Logistics, Marketing, Badlands) could support distribution growth, despite a challenged natural gas liquids (NGL) pricing environment for the next few years. Credit Suisse raise its price target from $51 to $55, and the consensus target is at $51.50. The company pays investors a nice 5.8% distribution.

Williams Companies Inc. (NYSE: WMB) reported operating income and earnings per share of $350 million and $0.22, respectively, above the Credit Suisse estimates of $339 million and $0.18 per share, primarily due to its outperformance in the Midstream Canada and Olefins businesses. Credit Suisse is raising its dividend estimates in line with management’s guidance through 2015. It also raises its price target from $46 to $49. The consensus price target is at $40. Investors are paid a solid 4.1% distribution.

Magellan Midstream Partners L.P. (NYSE: MMP) had a strong quarter, and the Credit Suisse team is raising their estimates across the board. They also are maintaining their distribution growth outlook in line with management guidance of $2.18 this year (16% year-over-year growth) and $2.51 next year (15% year-over-year growth). They keep their price target at $67, while the consensus is much lower at $56.50. Investors receive a 3.8% distribution.

While they did not change their neutral ratings, the Credit Suisse team is keeping a close eye on Enterprise Products Partners L.P. (NYSE: EPD), where they do raise the price target from $65 to $66 and investors are paid a 4.3% distribution. They also are monitoring the progress at Genesis Energy L.P. (NYSE: GEL), where they keep a $55 price target. Both stocks have been top performers for years, but they have experienced pricing issues with LNG and structural issues that have inhibited growth.

The MLP sector has been on fire this year after underperforming last year. The consistent solid distributions, combined with historically low interest rates, which are going nowhere fast, will keep the sector in demand. The companies showing distribution growth are the companies to keep on your radar screen.