2 Energy MLPs for Avoiding Mideast Volatility

by Bryan Perry | November 26, 2012 10:54 am

Though last Wednesday’s ceasefire agreement[1] between Israel and Hamas seems to be holding so far, tensions between the groups[2] have not magically been erased[3]. The Middle East has been a volatile region for 4,000 years, and in my opinion, the tempest of geopolitical risk will continue to simmer, if not boil over from time to time.

That’s why I prefer U.S.-based energy master limited partnerships (MLPs) like LINN Energy (NASDAQ:LINE[4]), Enterprise Products Partners (NYSE:EPD[5]) and Kinder Morgan Energy Partners  (NYSE:KMP[6]) when it comes to the energy sector. Domestic outfits like these offer more stability, though external news does have some effect on their price due to investor perception.

Recent inventory data show[7] that the U.S. has plenty of oil on hand, but it’s important to note that investor perception can overrule reality. Though most of the skirmishes that have cropped up in the Middle East run their course over a couple weeks and then die down as a result of diplomacy, these tensions can have an effect on domestic oil prices. Crude oil prices ended higher last week at $86 per barrel, but the energy sector has been one of the biggest laggards of late. A push up through $90 per barrel will invite strong capital flows back into the leading names as well as into high-yield oil and gas energy assets.

One of my top dividend-paying picks that would benefit if oil prices continue their uptrend is Breitburn Energy Partners (NASDAQ:BBEP[8]). It’s a very straightforward independent MLP focused on the acquisition, exploitation, development and production of oil and gas properties. It has been in a strong uptrend after posting earnings well above consensus estimates. It also announced a substantial increase to its 2012 capital spending program, and raised its quarterly distribution to 46 cents per share.

Another of my favorites is Cheniere Energy Partners (NYSE:CQP[9]), the leading play on the export of liquefied natural gas (LNG), with a dividend yield of 7%. The outlook is very bullish on CQP, and it holds an enviable position within the whole LNG investment thesis. For those who missed it, venture capital giant Blackstone Group invested $2 billion in Cheniere Energy Partners earlier this year, underscoring institutional enthusiasm for what lies ahead for the export of LNG to gas-hungry nations in Asia.

Yields for both of these MLPs are near their 2012 highs, and both offer very attractive entry points, assuming the broader market doesn’t drop another 500-point shoe from the uncertainty that has enveloped investor sentiment.

Bryan Perry is editor of Cash Machine[10], a newsletter focused on dividends and income investing.

  1. ceasefire agreement: http://news.yahoo.com/israel-hamas-agree-gaza-cease-fire-181335147.html
  2. tensions between the groups: http://www.reuters.com/article/2012/11/22/us-palestinians-israel-hamas-idUSBRE8AD0WP20121122
  3. not magically been erased: http://www.npr.org/2012/11/26/165896145/the-role-of-gazas-children-in-hamas-fatah-rivalry?ft=1&f=1004
  4. LINE: http://markets.financialcontent.com/investplace./quote?Symbol=LINE
  5. EPD: http://markets.financialcontent.com/investplace./quote?Symbol=EPD
  6. KMP: http://markets.financialcontent.com/investplace./quote?Symbol=KMP
  7. Recent inventory data show: http://www.marketwatch.com/story/oil-inches-lower-as-dollar-rises-2012-11-16
  8. BBEP: http://markets.financialcontent.com/investplace./quote?Symbol=BBEP
  9. CQP: http://markets.financialcontent.com/investplace./quote?Symbol=CQP
  10. Cash Machine: http://cashmachine.investorplace.com/about-bryan-perry.html

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