by Marc Bastow | August 15, 2012 11:50 am
In the slim chance you haven’t noticed, the price of gasoline is heading up.
What to do, what to do. Put your money into the traditional oil dividend plays like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) or Shell (NYSE:RDS.B)? Or perhaps head off the beaten track a little bit with some smaller oil and gas dividend players just outside that mainstream group, as recently profiled in InvestorPlace?
Here’s another idea: The natural gas or crude oil taken out of the ground eventually has to find a way to the refinery and the storage facility, and somebody has to 1) own or lease the pipelines, 2) own or lease the holding tanks, and 3) run the logistics, which means movement, of the asset.
Why not look into some of these companies? The great news is at least four outfits involved in the terminal/logistics and pipeline arenas are solid plays. They don’t get caught up in the costs and concerns that revolve around drilling and searching for the commodity. They move it and store it, plain and simple.
Let’s take a look at these four standout names in the terminal and logistics business:
NuStar Energy (NYSE:NS) is a San Antonio, Texas-based group involved in the storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and petroleum refining and marketing. So it’s not really a pure logistics play. But it still qualifies given its 66 terminal and storage facilities providing 84.6 million barrels of storage capacity; 5,480 miles of refined product pipelines with 21 associated terminals; two tank farms, and additional warehouse capacity.
The master limited partnership (MLP) started in 2001 as Shamrock Logistics and was part of the former Ultramar Diamond Shamrock, with a solid $92 million in revenues for that first year. A parntership with Valero (NYSE:VLO) ended in 2006, and the company has boomed ever since.
Revenues are now at just over $6.5 billion per year, and while EPS dipped in 2011, they’ve stayed on track with just over $220 million in earnings per year over the last four years. Dividends that started out in 2001 are now at $1.10 per quarter with a dividend yield of 8.26%. Keep a close eye on this because distributions may be under some pressure for the remainder of the year. Even though 2Q 2012 revenues hit targets, earnings were off and are expected to get squeezed a bit through 2012.
Philadephia-based Sunoco Logistics (NYSE:SXL) has been in the news lately, as pipeline company Energy Transfer Partners (NYSE:ETP) bought out Sunoco’s (NYSE:SUN) refining business and took a 32.4% stake in SXL.
What’s left is a company that maintains a portfolio of complementary pipeline, terminal, acquisition and marketing assets used to facilitate sales of crude oil and refined products. The model is a fee-based system, as SXL charges tariffs for transporting refined products, crude oil and other hydrocarbons, and collects fees for providing storage services. SXL also purchases crude oil and resells it to SUN and other customers.
Revenues have been climbing since 2009 and stand at just under $11 billion through 2011, with net income more than $300 million over the last two years. As a holdover of the parent company, SXL has been paying dividends since 2002, with the latest coming in at $1.88 per year, a very solid 4.44% dividend yield. That’s a fairly hefty 63% dividend payout ratio, but with cash flow coming in at nearly $500 million, it should be safe for investors.
Like NuStar, Houston-based Buckeye Partners (NYSE:BPL) is a master limited partnership. It owns and operates 6,100 miles of pipeline and 100 product terminals that provide storage capacity of just over 64 million barrels.
Buckeye is another one of John D. Rockefeller’s corporate grandchildren, tracing its roots to March 1886, when The Buckeye Pipe Line Company was incorporated as a subsidiary of Standard Oil Company. Buckeye became an independent publicly owned company after Standard Oil’s dissolution in 1911.
Today, Buckeye’s revenues sit at just over $5 billion, and in 2011 it ramped up margins to get to over $100 million in profits. Because it’s an MLP, 90% of its earnings are required to be paid out the investors as dividends. So, shareholders were treated to a whopping $4.16 per share, which currently registers as a 7.9% dividend yield. EPS estimates for 2012 and 2013 suggest a more modest return to shareholders, but steady nonetheless.
Yet one more company that’s no stranger to MLP enthusiasts, like InvestorPlace Editor Jeff Reeves, is Houston-based Plains All American Pipeline (NYSE:PAA). It’s engaged in the transportation, storage, terminal and marketing of crude oil and refined products, and unlike our first three companies, it’s also involved in similar operations for natural gas. PAA runs 18,700 miles of pipeline, operates terminals capable of holding 20 million barrel of oil and runs 83 transport and storage barges and 46 transport tug boats. PAA moves oil and gas on land and sea.
The biggest operator in our group, PAA generates revenues at just over $34 billion, with net income last year at just under $1 billion, a nearly 90% jump over 2010. Analyst estimates suggest 2012 will be almost as good, with just a slight downturn expected in 2013. PAA’s $1.07 per share quarterly dividend seems modest, but it still provides investors with a 5% dividend yield.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long XOM.
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