DCP Midstream Partners, LP (DPM): It’s The Infrastructure, Stupid

Page 1 of 2

“When everyone is looking for gold it’s a good time to be in the pick and shovel business,” said Mark Twain. I’ve already covered regional banks in the Marcellus and Bakken shale regions that stand to make money, but now it’s the infrastructure plays. In a nod to Bill Clinton’s strategist James Carville, “It’s the infrastructure, stupid.”

Suddenly, oil and gas MLPs are hot again with the IPO of USA Compression Partners and even an ETF dedicated to the group, the Global X Junior MLP ETF. A Carl Icahn name is expected to IPO shortly as CVR Refining and yield is expected to be over 18%.

According to a Business briefing article in Time’s January 21 issue on how to grow the US economy, the second best way to grow jobs and pump up GDP is to support the shale gas and oil industry. Already, the natural gas and oil boom is responsible for putting 1.7 million people to work. In particular, Dan Yergin, vice-chairman of IHS Cambridge Energy Research Associates, told Time that we need infrastructure (pipelines and production) to move output from North Dakota to the East Coast.

Spectra Energy Corp. (NYSE:SE)An important white paper by Marc S. Lipschultz for KKR called “Historic Opportunities from the Shale Gas Revolution” emphasized the importance of pipeline infrastructure saying, “Finally, there must be support for, and action to encourage development of a natural gas export infrastructure. In our view, Liquefied Natural Gas (LNG) exports are expected to play an important and constructive role in maximizing the domestic economic benefits of the shale gas revolution.”

The pipeline partnerships

One name to consider is DCP Midstream Partners, LP (NYSE:DPM) , which is a midstream master limited partnership. Its ownership and management is a little complicated so, from the corporate profile: ” DCP Midstream Partners, LP is managed by its general partner, DCP Midstream GP, LLC, which is wholly owned by DCP Midstream, LLC, a joint venture between Spectra Energy Corp. (NYSE:SE) and Phillips 66.” Don’t let the master limited partnership structure scare you off because of the tax paperwork. (Most of their corporate websites offer assistance and/or tips in dealing with the K-1). These are ideal for long term holds in a retirement account.

DCP Midstream gathers, compresses, treats, processes,stores, transports and sells natural gas, NGL and condensate (natural gas liquids), and distributes propane to the wholesale markets. As a master limited partnership it pays a distribution of $2.72 a share for approximately a 6.60% yield. While DCP dropped some 13% in 2012 the company was very optimistic on their Q3 earnings call in November about 5 new cryogenic plants in the Eagle Ford, ” with 760 million a day of processing capacity, approximately 6,000 miles of gathering systems, and 36,000 barrels per day of fractionation capacity.” The P/E is at 33.72 with a PEG of 1.37. Analysts expect five year earnings growth at 16.41%.

Spectra Energy Corp. (NYSE:SE) and Phillips 66 (NYSE:PSX) are not just silent partners, but actively investing $5-7 billion with hopes that DCP Midstream will be worth $15 billion by 2017.  That shouldn’t be a stretch as the company enjoyed 2011 revenue of $12.9 billion.  DCP Midstream is in that infrastructure pipeline sweet spot that Yergin spoke of as seen in this map from the company website.

Energy Transfer Partners LP (NYSE:ETP) is another midstream pipeline play with 23,500 miles of it. It has a 7.60% distribution yield and a 10.87 P/E. It is also much larger than DCP Midstream. This year it acquired Sunoco and its stake in Sonoco Logistics Partners for a more diversified energy portfolio than its formerly natural gas heavy emphasis.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!