Sunday, March 22, 2009

Making money in pipeline LPs (Part 6): investing directly in LPs

Individuals can invest in the pipeline LPs directly, although they should first discuss the tax consequences with their CPA or tax advisor. In general, larger LPs that have steadily increased their distribution payouts are safer bets than smaller ones or exploration/production companies, which are more dependent on commodity prices than other MLPs. Some players include the following.
Kinder Morgan Energy Partners (NYSE: KMP), the largest transporter of natural gas in Texas, the Midwest and the Rockies; and North America's biggest carbon dioxide supplier. LMP is one of the two partners in the huge Rockies Express gas pipeline project now being constructed.
TEPPCO Partners (NYSE: TPP), which runs a range of U.S. natural resource businesses, including pipelines, gathering systems, marine transports and storage.
NuStar Energy (NYSE: NS), which runs 8,500 miles of pipeline, 85 terminal facilities, four crude oil storage tanks and two asphalt refineries.
Enterprise Products Partners LP (EPD) is a $25 billion in revenues company and a leading integrated provider of natural gas, natural gas liquids, processing, transporting and storage services via 32,000 miles of pipeline. The $1.86 dividend, which has been raised in each of the last dozen years, yields a nice 9.9 percent and might be raised again this year to $1.95. In 2008, EPD’s Offshore Pipeline and Services segments posted weak numbers, a result of hurricane damage to these properties. EPD’s Petrochemical Services division also posted weak profits due to lower volumes and reduced demand for fuel. However, EPD’s NGL pipelines and onshore natural gas pipelines posted a dramatic rise in income, higher margins and increased marketing volumes recently. EPD is trading 14 points down from its 12-month high and two points above its 12-month low. Its 10-year dividend growth rate is about nine percent. A significant portion of the dividend income (about 80 percent) is considered return of capital and not taxable.
Energy Transfer Partners LP (NYSE: ETP) is a $10 billion revenue master limited partnership that gathers, processes, stores and transports products via its 16,000-mile pipeline primarily to users in Texas. EPD also owns Heritage Propane, the third largest marketer in the U.S. with 1.1 million customers in 40 states. The $3.58 dividend, about 80 percent return of capital, provides a current yield of 10.5 percent and has been raised every year since EPT came public at a split-adjusted $15 in 2004. Most analysts expect solid gains in 2009, 2010 and 2011 from earnings as well as attractive dividend increases in each of those years. Meanwhile, three major building programs should come online late this year, which should ensure continued growth in revenues, earnings and dividends. EPS is down 30 points from its 12-month high and trades eight points above its 12-month low. Dividend growth since coming public five years ago is 21 percent.
Plains All American Pipeline LP (NYSE: PAA) is a $32 billion master limited partnership with a $3.57 dividend yielding 9.6 percent. PAA’s dividend growth rate since coming public in 1999 at $20 is a good 9.7 percent. PAA owns 15,000 miles of pipeline and leases another 5,000 through which it stores, ships and markets crude oil, refined products and liquid petroleum gas. Several recent ventures should double PAA’s daily crude capacity to three million barrels a day and its recent acquisition of Pacific Energy Ltd. should add about $70 million to earnings by 2010 or 2011.

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