It’s no secret that we’ve seen energy prices go through a material pullback: from the high mid-$90 area down to $80 to $82. That’s been bad news for investors who own the big drillers like Exxon Mobil (XOM) and Chevron (CVX), which have just been hammered.
The energy dip prompted me to take profits off the table for my own favorite high-yield offshore driller because it looked like the fundamentals were starting to break down…especially given the fact that U.S. domestic production really alleviates a lot of need for offshore drilling. Not to mention the threat and the risk of that, like we saw in 2010 with the BP (BP) oil spill in the Gulf of Mexico.
But there’s plenty to do onshore for domestic oil and gas, and that’s really where the master limited partnerships I’ll recommend today come into play.
The volatility, I can’t prevent that, but I can tell you that I believe that the income streams from these three MLPs are sound. Plus, if the oil market rights itself and we get back up into the $90s, then we’ll see them continue to increase their distributions, which have been historically part of why I like these.
All three of the following energy stocks just put up stellar Q3 earnings results that support that thesis. Let’s take a look at the particulars of these MLPs.
Linn Energy (LINE)
First up is Linn Energy (LINE), which posted third-quarter results on Nov. 4 that were solid within the not-so-solid crude pricing environment.
For the quarter, Linn Energy increased production 51% compared to the third quarter of 2013. Linn Energy fully covered its 12.3% distribution and generated excess of net cash provided by operations of $88 million for the quarter, compared to $2 million for the third quarter of 2013.
Good results aside, investor sentiment remains very cautious, as Linn Energy shares near the low end of their recent ranges. But, personally, I like what I see from Linn Energy and think that there could be a great buy opportunity soon.
New Source Energy Partners (NSLP)
New Source Energy Partners (NSLP) also reported third-quarter results that were impressive. Distributable cash flow of 73 cents per unit was 62% higher than the same period in 2013, and distribution coverage was an impressive 1.25 times for the quarter.
New Source Energy Partners has a strong balance sheet, ample liquidity and a low debt-to-EBITDA ratio that positions it well for the future. After paying out its latest quarterly distribution, shares of NSLP are paying a whopping 13.6% forward yield as they trade near their 2014 low against the softer outlook for crude prices.
Teekay LNG Partners (TGP)
Lastly from the earnings parade, Teekay LNG Partners (TGP) put up solid numbers for Q3, generating distributable cash flow of $64.2 million and declaring a cash distribution of 69.18 cents per unit, for a 7.4% yield.
The quarter slightly exceeded Wall Street estimates, while Teekay LNG Partners provided a very solid outlook for stable cash flows from what is a growing fleet of liquefied natural gas (LNG) tankers with an average contract life of 13 years.
Here, too, Teekay LNG Partners stock is well off of its 2014 highs in the midst of the currently negative sentiment, but LNG clearly has the brightest future among fossil fuels, and this pullback in the shares is, in my view, a very compelling buying opportunity.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. And most recently, Bryan introduced Cash Machine Trader. With this service, he’s increasing the income stream potential even further by using covered call writing strategies to generate yield in the form of option premium — on top of capital appreciation income from well-known stocks.