4 Big Dividend Energy MLPs to Buy Rated Investment Grade
Lee Jackson
With a very difficult energy situation, and OPEC vowing to raise its production ceiling per day, the bad news for investors seems to never stop. One recent positive was a weakening of the dollar, which tends to help oil prices. Unfortunately, many on Wall Street see continued dollar strength in 2016 and more pressure. One good way to evaluate the current status of some of the top energy master limited partnerships (MLPs) is how they are rated by Standard and Poor's.
A new Deutsche Bank report includes a list of investment grade rated MLPs and midstream companies. We screened the list for those with a current rating of at least BBB and a stable outlook. We found four that look very good.
This company is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (EPD) once again, despite the energy slump, just raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason why many analysts may have a liking for the stock might be its distribution coverage ratio, which is well above one times, making it relatively less risky in the MLP sector. The company’s distributions have grown for several quarters and are expected to continue in 2016. The current rating is BBB+ and the outlook is stable.
Enterprise investors receive a very solid 6.72% distribution. Thomson/First Call consensus price target for the stock is a huge $34.55. Shares closed Friday at $22.93.
Magellan Midstream Partners
This top midstream company checks in high on the ratings list. Magellan Midstream Partners L.P. (MMP) primarily transports, stores and distributes refined petroleum products and crude oil. The partnership owns the longest refined petroleum products pipeline system in the country, with access to nearly 50% of the nation's refining capacity, and can store more than 95 million barrels of petroleum products, such as gasoline, diesel fuel and crude oil.
The company sports a BBB+ credit rating from S&P, and the outlook is listed as stable. One main reason for the very positive ratings is that almost 85% of Magellan Midstream's operating margin is protected by long-term, fixed-fee contracts, meaning that its cash flow is not just recurring and highly predictable, but also largely immune from energy prices. This helps to keep the distribution safer.
Magellan investors are paid a 5.06% distribution. The consensus price target is $80.46. Shares closed Friday at $60.24. pageTracker._trackPageview("/recirc"+window.location.pathname+"graphic/test1/view/special-report/2015/12/03/the-best-and-worst-run-states-in-america-a-survey-of-all-50-4/");document.getElementById("8949123475665c99b97a33").onclick = function() {pageTracker._trackPageview("/recirc"+window.location.pathname+"graphic/test1/click/special-report/2015/12/03/the-best-and-worst-run-states-in-america-a-survey-of-all-50-4/"); return true;}; Spectra Energy Partners
This company has posted very solid earnings and looks to continue raising distributions. Spectra Energy Partners L.P. (SEP) is one of the largest pipeline MLPs in the United States and connects growing supply areas to high-demand markets for natural gas, natural gas liquids and crude oil. These assets include more than 17,000 miles of transmission and gathering pipelines, approximately 170 billion cubic feet of natural gas storage and approximately 4.8 million barrels of crude oil storage.
Along with the solid second- and third-quarter earnings, Spectra declared a quarterly cash distribution to unitholders of $0.61375 per unit, an increase of 1.25 cents over the previous level of $0.60125 per unit back in August. This is the 31st consecutive quarter that the company has increased its quarterly cash distribution. The stock is rated BBB and stable.
Investors are paid a very solid 6.42% distribution. The consensus price target is $53.54. Shares closed Friday at $39.01.
Williams Partners
This is yet another top company that shines as investment grade. Williams Partners L.P. (WPZ) is an industry-leading, large-cap MLP with operations across the natural gas value chain from gathering, processing and interstate transportation of natural gas and natural gas liquids to petchem production of ethylene, propylene and other olefins.
With major positions in top U.S. supply basins and also in Canada, Williams Partners owns and operates more than 33,000 miles of pipelines system wide, including the nation’s largest volume and fastest growing pipeline, providing natural gas for clean-power generation, heating and industrial use. Its operations touch approximately 30% of U.S. natural gas. The company is rated BBB and stable.
Shareholders receive a large 13.62% distribution. The consensus price target is a whopping $55. The stock closed on Friday at $24.97. pageTracker._trackPageview("/recirc"+window.location.pathname+"text/test1/view/special-report/2015/11/05/americas-50-best-cities-to-live-2-2/");document.getElementById("15261480225665c99b97e1e").onclick = function() {pageTracker._trackPageview("/recirc"+window.location.pathname+"text/test1/click/special-report/2015/11/05/americas-50-best-cities-to-live-2-2/"); return true;}; While investment grade ratings and outlooks that are stable are good guidance for investors, it is important to note that S&P can change its ratings on the companies at any time. With that in mind though, given the rough patch the sector has seen, to still be rated investment grade and have a stable outlook is a credit to company management and execution.
