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

Energy Transfer Partners has been a busy bee lately what with the Sunoco buy and it’s also been switching its Trunkline from natural gas carrying capability to crude oil (although it can still take away gas) as it makes the transition from dependence on natural gas which hasn’t rewarded them yet with higher prices to crude which  somewhat hedges their bets.

Profit with the proud partners

The easiest way to invest in shale infrastructure if you are still wary of limited partnerships is to go with Phillips 66. Phillips 66 has performed very well since being spun off from ConocoPhillips in 2012.  It has risen from $28.75 to $55.83 and it’s pennies away from that 52 week high. The P/E is 6.35 with a yield of 1.80%. The company reports again on January 30.

Forty percent of their income is from chemical and midstream operations with refining and marketing taking up the lion’s share. Phillips 66 itself is planning a spin-off in 2013, likely creating a master limited partnership of some of their pipeline and NGL assets. Yes, I know it’s convoluted and complicated. Analysts are concerned about revenues dropping going forward so be careful with this one.

Spectra Energy has a higher yield at 4.40% and a 17 P/E. The company is reporting on February 5 and after announcing the 2013 financial plan on January 16 preannouncing guidance of 2013 EPS of $1.50 there should be few surprises. The company owns over 19,000 miles of pipeline and over 300 billion cubic feet of storage for natural gas.

The pipeline takeaway

Risks to all these companies include environmental protests and anti-fracking sentiment like the back and forth over the movie Promised Land with its plot of Matt Damon as an industry rep trying to win over a small Pennsylvania town to allow fracking. But keep in mind pipelines are the takeaway medium that allows oil drillers to stop “flaring,” a wasteful practice of burning off natural gas as a byproduct of drilling so pipeline takeaway infrastructure is environmentally responsible. Ever present risks are accidents, volatility of gas and oil pricing, and market sentiment.

However if you are in the MLP names, you are in for the long haul and should do very, very well. Sentiment for refiners like Phillips 66 can ebb and flow. Spectra Energy already guided below consensus of $1.55 but it’s a reliable long term name with over 100 years in the business.

The article It’s The Infrastructure, Stupid originally appeared on Fool.com.

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