Category Archives: MLP’s

Dividends, MLP's

Buy These 3 High-Yield Stocks Up Over 20% YTD

The signs are that the energy infrastructure/midstream sector have set up for a multi-year bull market recovery from the declines of the previous two years. A handful of energy midstream companies have gotten a jump on their peers and have already put up nice gains to date in 2018. Even with the 20% to 30% gains over the last few months, these energy sector leaders still have plenty of upside runway. It is not time to sell and it is not to late to join the ride with these stocks.

Prior to 2015, the majority of energy midstream service companies were organized as master limited partnerships –MLPs. These companies provide the assets and services needed to move energy commodities such as crude oil and natural gas from the well to the end user. The companies provide gathering and processing services in the energy plays, pipeline and other transport services, and own storage and terminal facilities. The energy sector crash that started in 2015 and lasted well into 2017 forced a lot of the infrastructure companies to restructure their balance sheets and business models. Now you will find a larger number of companies organized as corporations. However, about two-thirds of the publicly traded infrastructure/midstream companies are still organized as MLPs.

The steady growth in North American production of crude oil and natural gas is increasing the need for midstream services. The energy infrastructure companies are filling their pipelines, processing plants and storage terminals. They are launching new projects to handle the forecast growth. Revenues, free cash flow, and dividends paid to investors are on the upswing. Most of the companies have not seen the rising values reflected in their share prices. In contrast to the herd, a small number of the best run midstream companies working in the most prolific energy plays are up 20% to 30% (plus distributions) already this year. You can expect these companies to lead the pack for the rest of the year.

Related: 10 Highest Yield Dividend Stocks Going Ex-Div This Week

CNX Midstream Partners LP (NYSE: CNXM) is up 23.7% so far this year. CNXM is an MLP that owns, operates, develops and acquires gathering and other midstream energy assets to service natural gas production in the Appalachian Basin in Pennsylvania and West Virginia. The company operates in the Marcellus and Utica shales, the most prolific natural gas play in the U.S., if not the world. This MLP primarily provides services to CNX Resources Corporation (NYSE: CNX), which has a significant portfolio of midstream assets to be transferred to the MLP. CNXM has provided distribution growth guidance of 15% per year through at least 2022. The CNXM units currently yield 6.7.

Plains All American Pipeline LP (NYSE: PAA) is up 20.5% year to date. Plains owns and operates the largest independent network of crude oil gather systems, crude oil long distance pipelines, and crude oil storage facilities. The company has the largest gathering presence in the rich Permian energy play. It has one of the best pipeline takeaway capacities and is leading the charge to build new pipelines out of the Permian. This region is the growth engine of U.S. oil production and Plains All American Pipelines is best positioned to benefit from the production growth. The company offers alternative shares in Plains GP Holdings LP (NYSE: PAGP). Both securities pay the same distribution rates (each PAGP share is backed by a PAA unit. The difference is that PAGP is a 1099 reporting company for taxes. Plains should resume distribution growth in 2019. The shares currently yield 5.0%.

ONEOK, Inc. (NYSE: OKE) is up 29.8% so far in 2018. ONEOK (pronounced one-oak) is one of the largest energy midstream service providers in the U.S., connecting prolific supply basins with key market centers. It owns and operates one of the nation’s premier natural gas liquids (NGL) systems and is a leader in the gathering, processing, storage and transportation of natural gas. ONEOK’s operations include a 38,000-mile integrated network of NGL and natural gas pipelines, processing plants, fractionators and storage facilities in the Mid-Continent, Williston, Permian and Rocky Mountain regions. In mid-2017 the company merged its controlled MLP into the corporate parent. The share price gains show that the market likes this energy midstream company as a corporation. The OKE dividends increase every quarter and are forecast to grow by 10% per year. The shares currently yield 4.6%.

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MLP's

These 3 High-Yield Stocks Are All Now “Buys” With Oil Up Nearly 50%

Recently there have been two big, interrelated news stories coming out of the U.S. energy sector. The first is that the U.S. crude oil production continues to grow, and the U.S. has become the world’s largest producer of energy liquids. This growth has been led by the Permian Basin play in West Texas. The parallel story is that the Permian production is growing so fast, there is not enough pipeline capacity to get the crude oil and related energy commodities out of West Texas to refineries and export facilities. These energy transportation needs are permanent and energy infrastructure companies are racing to provide additional capacity.

Along with crude oil, the Permian wells produce natural gas and natural gas liquids (NGLs). In its annual Investor Day presentation Plains All American Pipeline LP (NYSE: PAA) stated that energy liquids production in the Permian has grown from less than two million barrels per day to a forecast average of 4.8 million barrels per day in 2018. That production level would make the Permian tied with China as the sixth largest producer in the world if it was a stand alone country. Crude oil production in the Permian is up 24% so far in 2018.

The problem now in the Permian is that all the take away pipelines are full, production continues to grow, and producers are scrambling to get their crude oil, NGLs, and natural gas out of the Basin. The ready solution is to truck the oil, which costs $10 to $20 per barrel, which is much higher than the $1 to $3 per barrel pipeline fees. That is why Permian crude oil is trading for up to $20 per barrel less than the West Texas Intermediate (WTI)_benchmark crude oil price. It is easy to see why the Permian energy producers are desperate for new pipelines to be built to transport oil and other energy commodities out of the Permian.

The energy midstream companies are moving in to build new pipelines and natural gas processing facilities. Natural gas from the wells must be processed into the natural gas used to heat homes and generate electricity, and into NGLs, which are used for a range of industrial purposes. It can take months to years for energy infrastructure assets to be built. Here are three companies with a head start on their peers and when new Permian assets come on line with increase the dividends paid to investors.

Plains All American Pipeline LP (NYSE: PAA) is a $30 billion enterprise value MLP focused on crude oil pipelines and terminals. Plains has focused on the Permian and is investing $1.6 billion in growth capital to expand its crude oil gathering and pipeline takeaway capacity in the Basin.

The company is expanding capacity on its Sunrise pipeline, which goes from the Basin to Cushing, OK. Also, the Cactus Pipeline from West Texas to Corpus Christi is being doubled with a second parallel pipeline. In total, Plains will increase its tariff volume from 3.24 million barrels per day at the start of 2018 to 3.8 million barrels in early 2018.

Plains provides gathering, intra-basin pipelines, and long haul pipelines, which allows the company to often collect several fees on a single barrel of oil. This MLP restructured its finances in 2017, including a 45% distribution reduction.

The company is now funding growth out of free cash flow and is expected to resume distribution growth in 2019. PAA yields 4.9%.

Targa Resources Corp (NYSE: TRGP) is an $11 billion market cap energy midstream company focused on the gathering, processing, transport and export of natural gas liquids (NGLs). These energy liquids are a big part of the value process of energy production in the Permian, North Texas and Oklahoma.

Targa is a major NGL player in all three regions. Management states that 75% of the company’s announced growth capital spending is going to Permian related projects. These include nine NGL processing plants and a new pipeline to move NGLs from West Texas to the Gulf Coast. New facilities will start coming on line this quarter and continue to start operations facility by facility through early 2020. The company forecasts 40% EBITDA growth between now and 2021.

The TRGP dividend has been level since late 2015. I expect dividend increases to start in 2019. The shares yield 7.4%.

NuStar Energy LP (NYSE: NS) is an MLP whose business operations are a balance of pipelines and storage facilities for both crude oil and refined energy projects. In May 2017 the company acquired an integrated crude oil and transport system in the heart of the Permian Basin.

Throughput in the NuStar Permian system has increased by over 100% since the acquisition. EBITDA on the system is forecast to double from here to 2020. The company has initiated a joint venture new crude oil pipeline to transport oil out of the Basin.

Currently the NuStar general partner interests are held by a publicly traded company, NuStar GP Holdings, LLC (NYSE: NSH). The companies have announced that NSH will be merged into NS, eliminating the general partner interests and added expense for the MLP. This should allow the company to increase distributions to investors at a faster pace. NS currently yields 9.5%.

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