Over the years, some have considered the energy trade an old-school relic. Still, as we discovered this winter, which in many areas was the coldest in 25 years, the demand for commodities remains consistent. Current spot pricing for West Texas Intermediate has fallen back to the lowest level in almost a year, and it was reported that hedge funds, while still long the benchmarks, are shorting gasoline and distillate futures. Trying to handicap the benchmark pricing for oil and natural gas is difficult, but energy master limited partnerships that transport and store are a different story altogether.
One of the best ideas for investors looking to add energy to their portfolios at current pricing is master limited partnerships (MLPs). They pay big and dependable dividends, and many energy master limited partnerships are midstream companies that control the movement or storage of oil and natural gas via contract pricing with the big oil producers.
This may be the best energy play for growth and income investors because the spot benchmark oil pricing of Brent and West Texas Intermediate crude directly affects the mega-cap exploration and production companies, while the long-term pricing contracts for the MLPs stay in place in most cases regardless of the spot price of oil.
We screened our 24/7 Wall Street MLP research database, looking for top companies that pay ultra-yield high distributions to their shareholders. Five top companies hit our screen, all set to pay shareholders incredible and dependable distributions.
Enterprise Products Partners
This is one of the largest publicly traded energy partnerships. Enterprise Products Partners L.P. (NYSE: EPD | EPD Price Prediction) provides various midstream energy services, including:
- Gathering
- Processing
- Transporting and storing natural gas, natural gas liquids (NGL) fractionation
- Import and export terminalling
- Offshore production platform services
The company has four reportable business segments:
- Natural Gas Pipelines and Services
- NGL Pipelines and Services
- Petrochemical Services
- Crude Oil Pipelines and Services
Many Wall Street analysts like the stock because of its distribution coverage ratio, which is well above 1x. This makes the company relatively less risky in the MLP sector.
Energy Transfer
This top MLP is another 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 of the major domestic production basins.
The company is a publicly traded limited partnership with core operations that include:
- Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
- Crude oil, natural gas liquids (NGL), and refined product transportation and terminalling assets
- NGL fractionation
- Various acquisition and marketing assets
After purchasing Enable Partners in December 2021, Energy Transfer owns and operates more than 114,000 miles of pipelines and related assets in 41 states, covering all major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG, the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco, and the public partner interests and 39.7 million standard units of USA Compression Partners.
Hess Midstream
This is the limited partnership midstream arm of one of the country’s top energy companies. Hess Midstream L.P. (NYSE: HESM) owns, develops, operates, and acquires midstream assets.
The company operates through three segments:
- Gathering
- Processing and Storage
- Terminating and exporting
The gathering segment owns natural gas gathering and crude oil gathering systems and produces water gathering and disposal facilities.
Its gathering system consists of approximately:
- 1,350 miles of high and low-pressure natural gas and natural gas liquids gathering pipelines with a capacity of about 450 million cubic feet per day
- The crude oil gathering system comprises approximately 550 miles of crude oil gathering pipelines
The Processing and Storage segment comprises:
- Tioga Gas Plant, a natural gas processing and fractionation plant located in Tioga, North Dakota
- 50% interest in the Little Missouri 4 gas processing plant located south of the Missouri River in McKenzie County, North Dakota
- Mentor Storage Terminal, a propane storage cavern, and rail and truck loading and unloading facility located in Mentor, Minnesota
The Terminaling and Export segment owns the Ramberg terminal facility, Tioga rail terminal, crude oil rail cars, Johnson’s Corner Header System, and a simple oil pipeline header system.
MPLX
This is one of the top holdings in the Alerian MLP energy exchange-traded fund. MPLX L.P. (NYSE: MPLX) is primarily engaged in transporting crude oil and refined products and terminating in the U.S. Midwest and Gulf Coast regions and natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. Independent U.S. refiner Marathon Petroleum formed MPLX.
The company’s assets include:
- Network of crude oil and refined product pipelines
- Inland marine business
- Light-product terminals
- Storage caverns
- Refinery tanks
- Docks
- Loading racks and associated piping
- Crude and light-product marine terminals
MPLX also owns:
- Crude oil and natural gas gathering systems
- Pipelines, natural gas, and NGL processing and fractionation facilities in key U.S. supply basins
USA Compression Partners
While perhaps less known than its peers and more skewed to natural gas, this top company is a growth and income investor’s dream. USA Compression Partners L.P. (NYSE: USAC) provides natural gas compression services.
The company offers compression services to:
- Oil companies and independent producers
- Processors
- Gatherers
- Transporters of natural gas and crude oil, as well as operating stations
USA Compression Partners primarily provides natural gas compression services to infrastructure applications, including centralized natural gas gathering systems, processing facilities, and gas lift applications for crude oil wells.
Grab These Energy Bargains Now
These five top companies offer safe and reliable distributions and are significant players in the energy infrastructure arena. Investors looking for solid total return potential can do well owning these MLP leaders. It is important to note that MLP distributions may contain a return of principal. Those looking to avoid the pesky and often late-arriving K-1s can always purchase shares in the ALPS Alerian MLP ETF (NYSE: AMLP). Investors will receive a 1099 instead of a K-1. The fund pays a 7.31% distribution quarterly.
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