Finding the best MLP stocks can be challenging when you consider the many high-yield master limited partnerships that have underperformed lately. Furthermore, there have been a lot of acquisitions in the space, and MLP investing has a changing list of players.
But for the big picture, investors have a lot to gain from investing in MLP stocks. These most energy-focused investments have huge dividends and stable operations that make them powerful income plays.
And besides, given the interest rate risk on bonds as rates inevitably rise in the next year or two, most investors should consider some kind of “bond-like stocks” as alternatives to long-term bonds. After all, rising rates means a decline in principle and many supposedly low-risk long-term bond funds could take a significant hit if and when the Federal Reserve raises rates.
If you’re looking for 5% yield or more, here are five MLP stocks worth investing in right now:
Williams Partners (WPZ)
Williams Partners L.P. (WPZ) is an MLP that focuses on energy infrastructure more than the fossil fuels themselves. Williams operates gas pipelines and midstream businesses around the U.S. and Canada, and dishes out a nice 7.0% yield at current pricing as a result.
Now, anyone looking to buy WPZ stock should be warned that the dividend at this MLP isn’t fixed and can fluctuate from quarter to quarter. However, the dividend has actually marched higher each of the last four years, from 64 cents to almost 92 cents a share, so that kind of change is certainly a good thing for investors.
Williams shares have admittedly been a bit volatile, underperforming in 2013 thanks to the “risk on” market and jumping around a bunch in the last year or so as the company has been challenged on the top line. But long-term performance is actually more sleepy then depressing; WPZ has a beta of just 0.3, meaning it “wiggles” much less than the market at large.
The big yield and head-of-the-industry market cap at nearly $23 billion means that Williams isn’t going away anytime soon … and if you’re worried about exposure to equities, you could do worse than hide out in a stable 7% dividend payer.
Energy Transfer Partners (ETP)
Energy Transfer Partners (ETP) is an old favorite among MLP investors, offering big yields that are remarkably consistent over time.
Sure, ETP shares haven’t gone crazy in the last few years, with a total return of 52% since summer 2010 vs. 97% for the S&P 500, however the payouts have been super steady with a yield of 6.8% at current pricing — better than three times a 10-year T-Note.
Energy Transfer Partners operates a business that matches its name — it transports natural gas around the U.S. And it’s one of the biggest in the space, with operations worth about $18.4 billion as of this writing. ETP is also growing fast, what with its recent project to build an ambitious 820-mile pipeline connecting processing facilities in the Marcellus and Utica shale fields and an April agreement to buy Susser Holdings (SUSS).
If you’re looking for a stable, natural gas play with big yields, you could do much worse than ETP.
BreitBurn Energy Partners
BreitBurn Energy Partners (BBEP) is a favorite of income guru Bryan Perry — and for good reason. The energy company is one of the largest players in so-called “upstream” fossil fuels, and provides a mammoth 9.0% dividend right now.
And for dividend investors who are living off their income, that distribution is paid each month instead of just once a quarter.
BBEP is involved with the first part of oil and gas delivery, focusing on exploration and development of energy fields across the U.S. BreitBurn isn’t just depleting those fields, however; it’s growing via acquisitions like the recent deal to buy QR Energy Partners (QRE) for $3 billion in stock. Prior to the QR buyout, BrietBurn completed the acquisition of Permian Basin partnership CrownRock for $282 million in December.
These deals will keep BrietBurn stable, while also keeping reliable cash flowing into the dividend pipeline. That ensures this juicy yield is sustainable going forward.
(If you want more high-yield picks like BBEP, sign up for Bryan Perry’s free dividend newsletter here!)
NuStar Energy (NS)
NuStar Energy (NS) is a midstream player that is a glorified toll-taker on the energy highway. Exploration stocks pull crude oil and gas out of the ground, and refiners process the fuels and bring them to market … and companies like NuStar are in the middle to transport and store the energy products for a modest fee.
NuStar has admittedly had some troubles in recent years, as InvestorPlace MLP expert Aaron Levitt recently pointed out. Most notably, a higher debt level has led to higher costs as long-term debt has jumped from $2.6 billion from around $1.9 billion in 2011. But the company has been restructuring, including spinning off its asphalt business this year in order to focus itself on midstream operations, which are the big driver of its dividends.
NuStar recently reported better-than-expected second-quarter earnings and continues to see strong cash flows that more than covers the hefty distributions of 6.7% at current pricing.
Most importantly, distributions have been pretty flat — squeaking up from $1.07 per quarter in 2009 to just $1.10 currently. If cash flows remain strong, future increases in distributions could be likely, making the already juicy payouts even nicer in the years ahead.
NGL Energy Partners (NGL)
NGL Energy Partners (NGL) is a “vertically-integrated” propane business, meaning it operates many aspects of propane distribution including retail, wholesale and midstream operations.
Propane is obviously not as sexy as natural gas, which is undergoing a renaissance thanks to the fracking boom. However, strong baseline demand means reliable distributions from an MLP like NGL Energy Partners.
In fact, those distributions aren’t just — they’re even growing. The current quarterly payouts of 59 cents are good for a 5.5% yield … but that’s up from 55 cents just a few months ago and a low of just 17 cents back in 2011 — a nearly 250% increase in just three years.
NGL has a few other segments, including crude oil logistics and storage, as well as natural gas terminaling that could provide growth in the years ahead. But as highlighted in a recent Barron’s analysis, most promising is a small water services and wastewater division that could see big growth as third-party energy companies stay hungry for water to feed their exploration activities.
NGL is also looking to expand by acquisition, as evidenced by its recent failed bid to acquire TransMontaigne.
NGL has raised a lot of capital lately to make a move, including pricing $400 million in senior notes back in June and expanding its credit facility to almost $2.2 billion. That’s a lot of dry powder for a $3.8 billion market cap MLP, so investors should have confidence that management is thinking long-term about growth prospects — both for NGL and for its distributions to shareholders.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.