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Go Sand-Combing for Big Dividends & Returns

Demand for frac-sand continues to surge, and HCLP, EMES and SLCA are the way to play it.

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Hi-Crush Partners LP

Since it began trading in August of 2012, shares of master limited partnership (MLP) Hi-Crush Partners LP (HCLP) have popped a whopping 59%. And there’s good reason for that gain. HCLP is premier and “pure-play” producer of high quality monocrystalline sand via its 561 acre facility in Wisconsin. That mine allows the company to process and deliver nearly 1.6 million tons of frac sand each year — the bulk of which is accounted for under various supply contracts with oil service firms Baker Hughes (BHI) and Halliburton (HAL).

However, Hi-Crush isn’t resting on its laurels. HCLP has recently purchased an interest in a new frac-sand mine as well as expanded its distribution network, giving it a chance to move sand into in the prolific Marcellus and Utica Shales.

And as a MLP, Hi-Crush is delivering all of that growth and cash flows back to HCLP stock investors as hefty dividends. HCLP stock currently has a dividend yield of 6.4% and has managed to grow that dividend since its recent IPO.

Emerge Energy Services LP

While it does provide energy transportation and processing services, the real story at Emerge Energy Services LP (EMES) is frac-sand. EMES owns and operates four silica mines with around 6 million tons of worth of annual production capacity. More importantly, it produces Northern White sand — with more than 60% at 50 mesh or coarser. That means EMES is able to charge top dollar for its product.

And those top dollars have padded the new firm’s bottom line.

On its latest earnings report, EMES saw a nearly 82% increase in profits and a 104% jump in revenues at its sand operations. That was significantly more than analysts had expected. And like HCLP, EMES is structured as a MLP — meaning those high profits will be making their way into investor’s pockets as frac-sand demand continues.

Already, EMES stock has paid two increasing dividends in its short history and currently yields 9%. However, the firm’s own distribution guidance is for dividends totalling $3.80 to $4.00 per share for all of next year. That’s a 10% to 10.5% dividend yield at today’s prices.

U.S. Silica Holdings

While it provides all sorts of sand and aggregate — including the sand that makes Apple’s (AAPL) iPhone faceplates — U.S. Silica (SLCA) has seen tremendous growth in its energy divisions over the last few years. During the third quarter alone, SLCA managed to ship 37% more frac-sand versus the third quarter of 2012. Those shipments came at higher margins and prices as well.

And like HCLP and EMES, U.S. Silica continues to expand its operations. The company recently partnered with BNSF Railroad to build a sand distribution terminal in the Eagle Ford shale. Overall, SLCA will ship more than 1 billion pounds of sand each year to the hot-bed of shale oil activity. That should help move SLCA stock higher over the longer term.

The only downside is that SLCA isn’t structured as a high paying MLP. So the firm’s dividned only yields 1.5%. However, that dividend is growing and should still provide SLCA stock investors plenty of “oomph” over the years.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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