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Trade of the Day: Teekay LNG Partners (TGP)

Leverage your income on an extremely strong sector

   

If you’ve been following my writings here on Investorplace or in my newsletters, you’ll know I’m a big bull on the natural gas theme. Liquefied natural gas (LNG) is a fuel that’s sourced in the U.S., burns clean with little to no emissions, is wildly abundant and drives thousands of new high-paying jobs. I don’t think this transformational shift is getting enough credit for the long-term benefits it promises.

The leading transport shipping company that delivers LNG to global end markets is Teekay LNG Partners, L.P. (TGP). This partnership is the purest play in the future of LNG transport, with its strategy to expand its operations in both the LNG and the liquefied petroleum gas (LPG) shipping sectors.

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As a complete energy shipping company, Teekay LNG provides LNG, LPG and crude oil marine transportation services under long-term, fixed-rate charter contracts with major energy and utility companies through its fleet of 29 LNG carriers, 27 LPG carriers, 10 Suezmax class crude oil tankers and one Handymax product tanker. TGP distributions have grown 7% per year on average — a trend that is truly a shareholder’s friend. Its current yield is 6.3%.

You can leverage that yield with additional income from covered calls, one of the most conservative options strategies.

Recommendation: Buy TGP at market ($42.88 as of Monday’s close) and sell to open the TGP September $45 calls at 35 cents or better. Potential gain if called away: 5.5%

Note: TGP is a Master Limited Partnership (MLP), which is a financial instrument that issues a K-1 form at the end of the year. Though covered calls are permissible in an IRA, I don’t recommend holding K-1 related income assets in your IRA as the IRS allows for only $1,000 per year in MLP-related income before penalties are applied. You can own a limited amount, but you need to be sure that you don’t exceed this threshold. Generally speaking, it’s easier to avoid this kind of situation than to have to actively manage those holdings in a retirement account.

Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with a the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.

Stay tuned! Bryan is currently working hard on a brand new strategy that amplifies your income potential by utilizing a conservative options strategy based on stocks you may already own.


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