Despite the market’s recent hiccups over the last few weeks, there have been some pretty great success stories. Some of the biggest “wins” have come from some freshly minted master limited partnership (MLP) IPOs.
There’s big money to be made in owning the critical infrastructure required to bring energy from wellheads to end users. And even more can be made if all those pipelines, storage tanks and gathering systems are placed in an MLP, as the tax structure provides huge benefits for individual investors and the sponsoring firms alike.
Aside from tax benefits, MLPs come some pretty hefty dividend distributions. Squarely in the 5% to 8% range. So it’s easy to see why the sector has seen great interest from investors — both retail and institutional.
And Wall Street has been happy to fuel that investor interest with new MLPs.
Several new MLPs have recently held their IPOs. And a few of them have the potential to be real superstars over the long haul. Here are three of the top new MLPs to buy.
MLPs to Buy #1: Dominion Midstream Partners, LP (D)
While Dominion Resources (D) controls nearly 27,000 megawatts worth of uninteresting generation facilities and 64,000 miles worth of boring power and transmission lines, it did have one asset that makes the electric utility an exciting play: its Cove Point liquefied natural gas (LNG) facility.
Originally, built to import LNG, Dominion has undergone a massive transformation to begin exporting LNG. More importantly, D has decided to tuck all the outstanding preferred equity interests in the project as well as a 136-mile pipeline that connects the Cove Point plant to onshore interstate pipelines into a MLP.
Since its IPO in the middle of October, Dominion Midstream Partners, LP (DM) is up a huge 48%. And there’s still plenty of reasons to be bullish on the MLP long term.
First, Dominion plans on “drop down” several more of its natural gas pipeline and infrastructure assets, along with its gathering systems in the Marcellus into DM. Those assets will continue to boost the MLP’s distributions further down the road. As for the Cove Point facility itself, the kicker is that it’s one of the only LNG facilities approved for exporting to non-trade agreement nations.
While Dominion hasn’t announced a distribution policy yet, MLP rival Cheniere Energy Partners LP. (CQP) yields 5.4% and that’s without the asset quality of DM. Expect big distributions from DM stock.
MLPs to Buy #2: CONE Midstream Partners LP (CNX)
The good news for investors is that coal stock stalwart CONSOL (CNX), isn’t really isn’t a coal miner anymore. The firm has quickly begun transferring itself away from the fuel and towards more lucrative natural gas production across Pennsylvania and Ohio. In turn, it’s built up an impressive asset base of pipelines, processing and gathering infrastructure located in the prolific Marcellus and Utica shales.
That impressive midstream infrastructure has made its way into newly MLP, CONE Midstream Partners LP (CNNX).
According to investment bank Credit Suisse, CNNX has the ability to receive roughly $3.3 billion worth of gathering line drop downs from CNX and joint sponsor Noble (NBL). Those assets should help CNNX deliver an extra $370 million in earnings per year starting in 2018. Additionally, construction on three gathering/pipeline systems will fuel the next leg of earnings and distribution growth at CNNX.
As for that distribution, CNNX plans to begin paying a dividend come the end of the fourth quarter. Not that investors really need it. Since going public at the end of September, CNNX stock is up 36%.
MLPs to Buy #3: Shell Midstream Partners, L.P. (SHLX)
There are energy companies and then there are the major integrated oil & gas stocks. So when one of the energy majors decides to sponsor a MLP, investors should take notice. And it’s hard to ignore a monster 39% opening-day pop.
Given its size, Royal Dutch Shell (RDS.A) owns one of the largest pipeline and gathering networks in North America. Those assets will make their way into the newly minted Shell Midstream Partners (SHLX) MLP.
Initially, SHLX will portfolio of pipeline assets that run along the coasts of Texas and Louisiana as well as offshore in the Gulf of Mexico. Additionally, the MLP will own a series of refined petroleum products pipelines linking Shell’s refineries to storage and energy trading activities. This small initial portfolio of pipelines should throw out about $100 million in cash for distributions to investors over the next 12 months.
However, this Royal Dutch Shell we are talking about- one of the largest energy firms on the planet. As such, the chance for drop downs into SHLX is huge.
In total, Shell’s midstream assets feature nearly 60 products terminals, 960 storage tanks, and roughly 15,500 miles’ worth of fully/partially owned pipelines. All in all, Shell moves around 2 billion barrels worth of energy each year through its midstream assets.
Given that potential, it’s easy to see why investors have flocked to SHLX stock in spades since its October 29 IPO.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.