So much for being just “toll-roads.” Master limited partnerships (MLPs) have become one heck of a volatile asset class. As the oil glut, energy sector bankruptcies and other factors continue to take hold, year-over-year, MLPs are still down a whopping 31% as measured by the uber-popular exchange-traded fund Alerian MLP ETF (AMLP).
However, for those investors with long timelines and a strong stomach to take the volatility in stride, MLPs continue to offer plenty of high yields. Oil continues to flow through pipelines, natural gas continues to be processed. In fact, the continued downturn in the sector has only boosted the distributions paid by MLPs to levels not seen in years through the combination of dividend increases and falling share prices.
That makes plenty of previously low-yielding and strong MLPs into high-yielding ones.
It also makes them incredible buys for long-term portfolios.
For those investors looking for income, high-yield MLPs are the stocks to consider today. Here are three high-yield MLPs to buy.
High-Yield MLPs To Buy: Holly Energy Partners L.P (HEP)
Dividend Yield: 7%
The key to finding the best MLPs to buy are those with steady volumes flowing through their pipelines. One of the best could be Holly Energy Partners L.P (HEP).
Set up to own all the pipelines, storage facilities and terminals that feed refiner HollyFrontier’s (HFC) facilities, HEP has steadiness in spades. The strategic relationship with HollyFrontier and its long-term contracts means that HEP has been able to realize relatively predictable cash flows each and every quarter. HFC knows how much crude it needs to push through its refining system and HEP provides the through-way.
The bonus comes from the fees generated from E&P operators using its system to provide HFC with crude. The MLPs pipelines and assets are located in prime geographic locations in the mid-continent and Texas. These are the areas that are still making money with oil being down so low. As a result, HEP hasn’t had to deal with the bankruptcy risks that other MLPs have had.
And yet, it has traded like it does. HEP’s distribution is now in the high-yield MLPs category at over 7%. And the firm continues to see increases in distributable cash flows.
For investors, HEP is definitely one of the best high-yield MLPs to buy.
High-Yield MLPs To Buy: Oneok Partners, L.P. (OKS)
Dividend Yield: 8.2%
When it comes to moving and processing natural gas, few high-yielding MLPs are as large as Oneok Partners LP (OKS).
Oneok’s entire asset based is devoted to natural gas — all within key producing regions in the United States and Canada. Those assets total nearly 36,000 miles worth of natural gas and natural gas liquids pipelines. That’s plenty of FERC-regulated interstate transmission pipelines, gathering lines, storage capacity and processing facilities.
For OKS, it has been that last chunk that has been the thorn.
Natural gas liquids (NGLs) pricing is more closely tied to crude oil prices. As a result, this side of OKS has suffered in the wake of low energy prices.
The silver lining here is that oil has already ticked upwards in recent weeks. That’ll be a boon for OKS’s bottom line. Analysts estimate that OKS will earn around 36% more this year on the back of higher NGL prices.
And considering that OKS has kept its distribution plugging away during the recent rout, the boost in profits only strengthens the high-yield MLP’s 8.2% yield.
All in all, when it comes to MLPs to buy, Oneok Partners could be the play on natural gas.
High Yield MLPs To Buy: Enbridge Energy Partners, L.P. (EEP)
Dividend Yield: 10.6%
MLPs survive and thrive based on the strength of their parent. That’s because they can provide plenty of juicy drop-downs that result in instantly accreditive cash flows. Enbridge Inc. (USA) (ENB) is one of the nation’s largest pipeline and midstream infrastcture firms in North America. And its high-yielding MLP — Enbridge Energy Partners, L.P. (EEP) — is no slouch either.
ENB has gotten serious about using its MLP in recent years and has done the drop-down dance to a T.
The problem is that those drop-downs have been mostly oil-related pipelines. For EEP, the slowdown in crude oil meant a slowdown in volumes in its massive pipeline network. In recent quarters, that finally began to hurt the firm’s bottom line. It also sank shares of the MLP and boosted its yield up to whopping 10.6%.
However, the last reported quarter, EEP got what it needed — a major boost in volumes. Two new projects coming online as well as rising oil prices helped the firm see an increase. Those added volumes will be buoyed by the recent rise in oil prices this quarter. As result, EEP is in a better place to be paying that large 10.6% dividend yield.
EEP units are certainly riskier than the others on this list, but that risk is becoming less and less every day. For investors looking for high-yielding MLPs, Enbridge Energy Partners could be a great addition.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.