Top High Yielding MLPs: Northern Tier Energy LP (NTI), Eagle Rock Energy Partners, L.P. (EROC)

Page 1 of 2

High yields can be found in MLPs (Master Limited Partnerships). Usually structured around a particular qualified business (often energy-related), MLPs do not pay a corporate income tax, as they pay pass profits on directly to the shareholders (technically unit-holders) on a quarterly basis. These payments, however, are not technically dividends–they are distributions, and as such have a special tax status. Unlike dividends, a large percentage of these distributions are considered to be “return of capital,” and therefore you only pay taxes on them once you sell the stock. This allows for interesting tax-deferral strategies.

The following three MLPs pay generous distributions and are well-regarded by most analysts. Would it be wise to initiate a position in any of them?

Eagle Rock Energy Partners, L.P. (NASDAQ:EROC)Eagle Rock Energy Partners, L.P. (NASDAQ:EROC): The company is involved in the production of mostly oil and some natural gas, and owns 8,000 miles of gathering pipelines in the Southern United States, as well as 21 gas processing plants.

1). From a valuation standpoint, the company does not have a current P/E ratio, as earnings per share were negative last quarter. However, future P/E stands at 30.32.

2). Average analyst target price is $10.30, which implies a potential upside of 9.57% from current prices. Recent price targets, however, have been higher than the current average of $10.30. Mean current recommendation is 2.40 (with 1 being strong buy, and 5 a strong sell).

3). The distribution is $0.88/share, which works out to a very attractive 9.36% yield.

4). My take: Value-wise this stock is not very attractive: valuation ratios are either high or nonexistent. If the company is not able to return to profitability this year, then this stock will probably underperform. However, future prospects are good: a recent partnership with BP for gathering and processing in the Texas Panhandle should help the company’s cash flow, and a good contract strategy should keep the company relatively hedged from further natural gas price declines. With good growth prospects and attractive yields, investors should consider buying this MLP.

Mid-Con Energy Partners LP (NASDAQ:MCEP) : The company is engaged in the acquisition, development, and production of oil properties in the United States (mostly in Oklahoma and Colorado). Known for its water-flooding technique, the stock has risen 20% YTD, but still retains attractive valuation ratios and distribution yields.

1). While currently trading at a not-so-cheap P/E of 18.36, the forward P/E is a more attractive 11.14.

2). Analysts are generally bullish on the stock. They have an average price of $25.33 (which implies a potential price upside of +13.08%), and an average recommendation of 1.40.

3). With the recent price surge, the yield has dropped to 8.66%. While still a very high figure, the yield was in the double digits in December. At any rate, MCEP pays an attractive distribution of $1.94/unit.

4). My take: While not necessarily a value play, MCEP is certainly a growth play. Rapid increases in production, possible joint ventures, ample access to capital, smart hedging strategies, and attractive yields make this a stock definitely worth considering.

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

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

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!