by Aaron Levitt | April 24, 2013 12:12 pm
For investors, master limited partnerships (MLPs) continue to pay the goods with fat yields and capital appreciation. Benefiting from rising natural gas and oil production, the midstream sector has been on fire. Big money can be made in owning the critical infrastructure required to bring energy from wellheads to end users.
Even more can be made if all those pipelines, storage tanks and gathering systems are placed in an MLP because of a tax structure that provides big benefits for individual investors and the sponsoring firms alike. Strong stable cash flows and high tax-deferred distributions — in the 5% to 8% range — await investors who take the MLP plunge.
However, as investor interest swelled, yields on popular MLPs — like Kinder Morgan (NYSE:KMP) or Enterprise Products Partners (NYSE:EPD) — have diminished. That makes these firms less attractive to big yield hunters, even if there’s nothing wrong with KMP and EPD.
For those investors looking for large distributions from their MLPs, jumping off the beaten path is a necessity. With that in mind, let’s take a look at five ignored MLPs with big yields.
With natural gas production still surging across the nation, Atlas Pipeline Partners (NYSE:APL) could be one of the top picks. The firm owns and/or operates approximately 10,100 miles of active natural gas gathering systems in key producing regions like the Woodford shale, Permian Basin and Barnett.
However, Atlas isn’t resting on its laurels.
The company recently agreed to shell out $1 billion to buy private midstream firm TEAK Midstream in order to expand into the Eagle Ford shale field in South Texas. The deal will add “over 540 miles of gathering pipelines, a 200 million cubic-foot-per-day treatment plant as well as a similar-sized plant that is currently under construction,” according to Bloomberg.” The firm has already begun talking about expanding upon TEAK’s system in the region to reach more producers.
Most importantly, the purchase will benefit shareholders, boosting the company’s earnings before interest, taxes and amortization (EBITA) by as much as $500 million in 2014. Plus, it will add value almost immediately since APL is paying cash for the purchase.
Overall, the system will help to strengthen cash flows and APL’s juicy 6.5% yield.
One of the side effects of surging natural gas production is figuring out where to store all the stuff once it comes out of a well. Without storage, natural gas firms are forced to dump their production on an already glutted market, ultimately causing prices to continue to fall further and hurt profits.
That’s where Niska Gas Storage Partners (NYSE:NKA) comes in. Currently, the firm operates approximately 225.5 Bcf of working gas storage capacity across three facilities. By providing the necessary storage, NKA is able to collect big fees from the E&P firms while the seasonality of the natural gas sector takes place. Overall, it’s a pretty booming business.
Unit holders are getting a pretty big “boom” as well. Niska recently did some deal-making where it converted subordinate units into new incentive distribution rights (IDRs). The company couldn’t increase its distribution to common unit holders (NKA holders) without paying minimum distributions owed to its general partner.
Basically, this reduces the risk that Niska will have to reduce its dividend to pay back these IDRs and gives upside potential for investors. NKA yields a huge 9.4%.
While most investors tend to think about pipelines when they think about MLPs, the truth is there are a ton of different infrastructure and midstream assets that can be placed in the corporate structure. Martin Midstream Partners (NASDAQ:MMLP) operates a hodge-podge of various businesses and it operates them very very well.
These include oil storage terminals, marine transportation assets, pipelines, six sulfur-based fertilizer plants and one emulsified sulfur blending plant. All are located in the critical Gulf Coast.
That mixture of assets plus Martin’s strong management has resulted in increasing cash flows and earnings that have flowed back to shareholders. MMLP has managed to grow its dividend by 9.5% on a compound annual basis since it listed in 2003. That’s more than 60% higher than the dividend growth for other MLPs. MMLP currently yields 7.4%.
Buckeye Partners (NYSE:BPL) owns and operates one of the largest refined petroleum products pipeline systems in the U.S. featuring more than with over 6,000 miles of pipelines under its umbrella. Additionally, the firm also owns around 100 liquid petroleum products terminals with a combined storage capacity near 70 million barrels.
This system has provided shareholders with plenty of dividend growth over the years. Its history dates back all the way to Standard Oil. However, BPL is about to kick it into high gear.
The company’s new crown jewel could be its new BORCO marine terminal in the Bahamas. This storage depot is strategically located to take advantage of all the deepwater drilling going on in the Gulf of Mexico as well serving as a storage hub for crude bound through the Panama Canal.
Buckeye is constructing an additional 4.7 million barrels of storage capacity to the terminal’s current 24.9 million barrels of capacity. BORCO will ultimately serve as a growth element for the firm and shareholder distributions.
BPL currently yields 6.6%.
Operating approximately 3,500 miles of natural gas, NGL, and oil pipelines as well as other midstream infrastructure, Crosstex Energy (NASDAQ:XTEX) can be seen as a play on the entire spectrum of energy production in the U.S. However, the firm may have another ace up its sleeve: wastewater disposal.
The fracking process creates a lot of wastewater that needs to be collected and disposed of properly. Crosstex is one of the largest oilfield brine disposal companies Ohio River Valley area and provides brine disposal services in Ohio, West Virginia and Pennsylvania — i.e. the Marcellus and Utica shales.
XTEX has continued to drill and add new wastewater disposal wells in the area. This focus on brine disposal will help provide growth in the firm’s juicy distribution.
Not that it needs the help. Since 2010, XTEX has managed to grow its distribution by 13.5% a year. Crosstex currently yields 6.8%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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