Master Limited Partnerships (MLPs) have been great for returns this year, and right now there is a short window of opportunity to restock your energy MLPs—especially for pipelines—as the Alerian Index contracts 4%. The Alerian MLP Index offers a dividend yield—or per-share income as a percentage of its price—of about 6%.
There are six Alerian indices: the Alerian MLP Index (AMZ), the Alerian MLP Infrastructure Index (AMZI), the Alerian Natural Gas MLP Index (ANGI), the Alerian Large Cap MLP Index (ALCI), the Alerian Equal Weight Index (AMZE), and the Alerian Energy Infrastructure Index (AMEI). The Alerian Index Series is used for the purposes of asset allocation, investment analysis, portfolio hedging, and the creation of index tracking funds.
We particularly like energy transportation (mostly pipelines) right now, and the first quarter of this year has already seen three new energy transport MLPs surface, with indications that others are in the works, with Devon Energy (DVN) and Enbridge Energy Partners (EEP).
The AMEI is a composite of 30 core energy infrastructure companies in North America engaged in transportation, storage and processing of natural resources.
We are favoring MLPs that own their own pipelines because they tend to have yields that are lower than average but are turning out major price appreciation. Basically, putting pipeline assets into an MLP allows the sponsoring company to avoid taxes and ear back distribution payments, which can be rather sizable.
Then there’s this development: In comparison with S&P 500, the MLPs Alerian Index has made more significant gains since the beginning of the year (20% compared to S&PC’s 16.3% as of 7 June). But right now, the Alerian Index is falling back a bit, giving investors a great opportunity to restock while prices are lower.
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But the broader picture is that energy infrastructure MLPs will continue to grow in tandem with the shale oil and gas boom, because all that new product has to get to market cheaper and easier than it is now. According to EnergyWire, “most of the cash that if financing the enormous capital projects comes from tax-favored investments [MLPs] … and capital spending by energy companies organized as … MLPs in and around the nation’s major sale oil and gas plays is expected to hit $25 billion this year—bringing the total since 2007 to 4113 billion.”
Credit Suisse has put out its list of “top MLPs” to buy right now from its portfolio, and there are some pretty attractive offerings here:
Williams Companies Inc. (NYSE: WMB) is a favorite stock to buy at Credit Suisse. Insiders have bought the stock on the recent decline. The Credit Suisse price target is $49. The Thomson/First Call estimate is lower at $41. Unit-holders are paid a 4.0% distribution.
Access Midstream Partners L.P. (NYSE: ACMP) is one of the leading players of the industry. It owns, operates, develops and acquires natural gas, natural gas liquids and oil-gathering systems in the United States. The Credit Suisse target for the stock is $46, while the consensus target is $47. Unit-holders receive a 4.2% distribution.
EQT Midstream Partners L.P. (NYSE: EQM) is an aggressive growth stock, as revenue increased 43% last quarter and its income almost doubled. Up more than 130% since its initial public offering, growth prospects remain solid. Credit Suisse has a $47 price objective, the same as the consensus target. Unit-holders are paid a 3.2% distribution.
Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the oil and gas industry, focusing on pipelines and storage, among other areas. Most analysts anticipate earnings growth of 31% and 29% in 2013 and 2014, respectively. Credit Suisse has a $53 price target, while the consensus is at $51. Unit-holders are paid a 3.9% distribution.
Cheniere Energy Inc. (NYSEMKT: LNG) plans to begin exporting liquid natural gas from its first train at Sabine Pass by the end of 2015, with the second train following shortly after. Two more trains are expected to come online in the following year. The company’s Corpus Christi liquefaction facility is targeting a 2017 in-service date. Credit Suisse has a $38 price target, and the consensus is at $38 as well.
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MarkWest Energy Partners L.P. (NYSE: MWE) recently raised capital by selling more than 40 miles of recently constructed high-pressure gas gathering pipelines, certain rights-of-way related with the pipelines and two compressor stations totaling more than 21,000 horsepower of combined compression in West Virginia. Credit Suisse has a $73 target, and the consensus is at $70. Unit-holders are paid a 4.9% distribution.
Sunoco Logistics Partners L.P. (NYSE: SXL) engages in the transport, “terminaling” and storage of crude oil and refined products in the United States. Its Crude Oil Pipelines segment transports crude oil principally in Oklahoma and Texas. The Credit Suisse price objective is $72, and the consensus target is quite lower at $66. Unit-holders receive a 3.7% distribution.
Targa Resources Corp. (NYSE: TRGP) has put together a combination of natural gas midstream and downstream processing assets that have allowed the company to pay a steadily increasing distribution, by 10% to 12% per year, with every expectation to continue the growth rate into the future. Credit Suisse has an $82 target, but the consensus is much lower at $72. Unit-holders are paid a 3.0% distribution.
By. Jen Alic of Oilprice.com