Tuesday, December 6, 2011
Three energy pipeline MLPs that yield seven percent or better return
The following high-yielding MLPs are currently paying a return of seven percent or more per year:
BreitBurn Energy Partners (Nasdaq: BBEP). BBEP primarily invests in oil and gas properties in the Antrim Shale in northern Michigan, the Los Angeles Basin, Wyoming, Florida, and Kentucky. Unlike many MLPs, it does a considerable amount of exploration, so while its income is more risky, it is not self-liquidating. To ensure a steady cash flow, BBEP hedges its output for up to three years forward. This produces a stable cash flow but a wildly fluctuating income when oil prices bounce up and down. Thus, in the third quarter of 2011, BBEP reported net income of $2.87 per share as oil prices dropped, giving it a large profit on its forward hedges of three years' production. Operating EBITDA was about 90 cents per share and the company declared an increased quarterly dividend of $0.435 per share, or $1.74 per year, on the basis of which its yield is 9.8 percent. Since it's also trading at 14 percent below net asset value, BBEP looks like a good deal on both an income and a capital basis.
Penn Virginia Resource Partners LP (NYSE: PVR). Penn Virginia operates in two segments, coal and natural resource management, which manages and leases coal properties, and natural gas midstream, which offers gas processing, gathering, and other related services. It's somewhat diversified, with steady income but also has exposure to rising resource prices. Its quarterly dividend of $0.50 has risen steadily since 2003 and has doubled in that period. Net income currently does not quite cover the dividend, but cash flow is ample and there are many MLPs with worse income positions. It currently yields 7.7 percent but is trading at 4.4 times book value.
TC Pipelines LP (Nasdaq: TCLP): TC Pipelines transports natural gas in the United States and eastern Canada and owns 46.5 percent of Great Lakes Gas Transmission LP. Unlike many of these companies, its earnings cover its dividend - $3.11 per share in the last four quarters, compared with a 77-cent quarterly dividend totaling $3.08. Being a pipeline, it has the advantage of very steady earnings, and yields 6.8 percent. That may not exciting, but it's still more than three-times Treasuries for a cash flow that is bond-like in its assuredness.