In this piece, we will take a look at the 11 best pipeline and MLP stocks to buy.
Taking stock of the current economic situation in the U.S. and the globe, the primary headache for investors, companies, and governments is inflation. The key tool in central banks’ belt to deal with inflation, which is at decades high levels, is raising interest rates. While these do end up bringing down the prices, they also make capital hard to access and result in a tougher business environment.
In this environment, investing in Master Limited Partnerships (MLPs) and the broader pipeline sector can be worthwhile. Data gathered by Alerian shows that midstream MLPs do tend to outperform real estate investment trusts (REITs) and utilities in a high interest rate environment, with significant differences in rate returns when ten year treasury yields are high. Additionally, as of December 2021 MLPs that are part of the Alerian AMZ index, have posted an average yield of 7.7% over the past ten years, which is nearly double the yield of REITs and utilities.
Alongside the high interest rate environment, the tightening demand for oil and the surge in global oil prices as the Russian invasion of Ukraine culls supply and fears of a global recession compel OPEC+ to keep prices high for protecting balance sheets, further investment in oil exploration will only grow, particularly in the U.S. Finally, another key benefit of MLPs is the fact that their income is not taxed at the corporate level. Instead, it is passed through as dividends to the investor, for a nice and comforting benefit during these turbulent times.
All these factors create a favorable environment for investing in MLPs and pipeline firms, and with them in mind, we have compiled a list of some firms that merit a deeper look. Out of these, the well known names are Brookfield Infrastructure Partners L.P. (NYSE:BIP), Enterprise Products Partners L.P. (NYSE:EPD), and Targa Resources Corp. (NYSE:TRGP).
Our Methodology
We scanned the MLP and pipeline industry to sift through the countless firms that are present to select the ones that are most likely to benefit from the current favorable environment. The firms were evaluated through a variety of factors such as their financial performance, dividends, market dynamics, and hedge fund investments gauged via Insider Monkey’s 895 fund survey for this year’s second quarter.
11 Best Pipeline and MLP Stocks to Buy
11. Delek Logistics Partners, LP (NYSE:DKL)
Number of Hedge Fund Holders: N/A
Delek Logistics Partners, LP (NYSE:DKL) is an American company that is involved in transporting crude oil through its pipelines, marketing its oil products, and investing in pipeline joint ventures. The firm is headquartered in Brentwood, Tennessee, the United States.
Delek Logistics Partners, LP has 855 miles of crude oil and refined product pipelines and 800 miles of crude oil gathering systems in its belt. Additionally, the firm also has very stable cash flows since it is known for mostly entering stable, long term contracts with up to fifteen years of life. These leave it nearly immune to macroeconomic shocks, and the firm’s latest financials reveal that roughly 63% of its post direct cost profits also came from these contracts.
Delek Logistics Partners, LP has also consistently grown its operating and net incomes for the past six years, including during the coronavirus pandemic which all but collapsed the energy industry. As is the case with MLPs, Delek Logistics Partners, LP pays a sizable dividend of 98 cents for a 7% yield.
Along with Targa Resources Corp., Enterprise Products Partners L.P., and Brookfield Infrastructure Partners L.P., Delek Logistics Partners, LP is a strong pipeline and MLP stock.
10. Sunoco LP (NYSE:SUN)
Number of Hedge Fund Holders: 2
Sunoco LP (NYSE:SUN) is a fuel distribution and marketing company that is one of the oldest of its kind that was set up in 1886 and is headquartered in Dallas, Texas, the United States. The company purchases fuel oil from refiners and supplies it to dealers and retail outlets.
Sunoco LP is the largest fuel distributor in the U.S., with fuel distribution and marketing representing 97% of its sales as of its second fiscal quarter. During the same time period, the firm’s revenue grew by 64%, in a strong show of performance as it benefited from high oil prices. Additionally, Sunoco LP’s operating expenses have dropped consistently since 2017 when they stood at over a billion dollars to standing at a little over $400 million in 2021.
Sunoco LP also pays an 83 cent dividend for an 8.39% yield. Insider Monkey’s Q2 2022 survey of 895 hedge funds outlined that two had owned the company’s shares.
Sunoco LP’s largest investor in our database is Matthew Hulsizer’s PEAK6 Capital Management which owns 7,635 shares that are worth $284,000.
9. Green Plains Partners LP (NASDAQ:GPP)
Number of Hedge Fund Holders: 3
Green Plains Partners LP (NASDAQ:GPP) is an American fuel storage and transportation company. The firm has storage tanks and fuel terminals all over the country and it also operates tankers and trucks to transport ethanol and other fuel. Green Plains Partners LP is headquartered in Omaha, Nebraska.
Instead of crude oil or other traditional fuel products, Green Plains Partners LP instead focuses on transporting ethanol. This leaves the firm with both benefits and disadvantages. On the former front, the push for alternatives for crude oil is gaining momentum, and the ethanol fuel market is expected to grow at a CAGR of 4.6% from 2022 to 2031, to stand at $134 billion by the end of the forecast period, according to research by AlliedMarketResearch.
This provides Green Plains Partners LP with a key advantage of growing with the industry. However, on the flip side, it also leaves the firm exposed to downsides in the industry. To soothe investor nerves, Green Plains Partners LP pays a 45 cent dividend for one of the strongest dividend yields in the industry at 14.20%. Insider Monkey’s Q2 2022 survey of 895 hedge funds revealed that three had held a stake in the company.
Green Plains Partners LP’s largest investor in our 895 hedge fund database is Jeff Osher’s No Street Capital which owns 1.9 million shares that are worth $24 million.
8. Holly Energy Partners, L.P. (NYSE:HEP)
Number of Hedge Fund Holders: 3
Holly Energy Partners, L.P. (NYSE:HEP) is a midstream petroleum and crude oil company that provides a host of services such as terminalling, storage, and transportation. The firm has 26 pipelines and thousands of miles of track feet of rail storage. It is headquartered in Dallas, Texas, the United States.
Holly Energy Partners, L.P.’s finances are difficult to grasp, since, like other oil companies, they are complicated by the presence of temporary factors. The firm’s free cash flow for the second quarter dropped by 5.9% annually and stood at $152 million on the surface. However, hiding underneath are temporary working capital adjustments of $86.6 million caused due to inflation, and a high turnaround expenditure of $6.6 million – both of which are not indicative of long term operating expenses. Once these are removed from the equation, Holly Energy Partners, L.P.’s latest free cash flows stand to grow at 15.5%.
Holly Energy Partners, L.P. also pays a 35 cent dividend for an 8.2% yield, and three out of Insider Monkey’s June quarter of 2022 survey of 895 hedge funds had invested in the company.
Out of these, Ken Griffin’s Citadel Investment Group is Holly Energy Partners, L.P.’s largest investor. It owns 118,581 shares that are worth $1.9 million.
7. DCP Midstream, LP (NYSE:DCP)
Number of Hedge Fund Holders: 3
DCP Midstream, LP (NYSE:DCP) is a midstream natural gas asset developer in the United States. The firm transports and stores natural gas and natural gas liquids alongside treating and processing the same energy products. It is headquartered in Denver, Colorado.
DCP Midstream, LP’s facilities are capable of handling 5.4 billion cubic feet of natural gas daily, alongside storing 12 billion cubic feet of natural gas. The firm is slated to benefit from the growing interest in clean burning fuel, particularly due to the push towards clean energy and the ongoing Russian invasion of Ukraine which has injected even more life into the sector.
These factors also contributed to a strong free cash flow for DCP Midstream, LP during its second fiscal quarter, with the firm reporting a distributable cash flow of $369 million, which grew by a remarkable $250 million annually. This also led to a high distribution ratio of 4.5x – more than triple the industry average of 1.2x. DCP Midstream, LP pays a 43 cent dividend for a 4.55% yield.
Three out of the 895 hedge funds part of Insider Monkey’s Q2 2022 analysis of 895 hedge fund portfolios had held a stake in the company.
Out of these, Ken Griffin’s Citadel Investment Group is DCP Midstream, LP’s largest investor. It owns 55,773 shares that are worth $1.6 million.
6. CVR Partners, LP (NYSE:UAN)
Number of Hedge Fund Holders: 4
CVR Partners, LP (NYSE:UAN) is an MLP that serves the needs of the fertilizer industry by selling nitrogen products such as ammonia, urea, and ammonium nitrate. It is headquartered in Sugar Land, Texas.
CVR Partners, LP has several macroeconomic indicators working in its favor. For instance, world hunger is increasing, with major food producing regions of the world such as the U.S., China, and India witnessing a drop in crop yields. Additionally, the Russian invasion of Ukraine has left American fertilizer producers in an advantageous position due to Europe’s energy crisis.
Couple this with the fact that Nitrogen prices are expected to grow by up to 30% by the end of this year, and the impact on CVR Partners, LP of the recent economic environment is clear. Perhaps this is also why the company’s shares have also rallied by 48% year to date, even when all major stock indexes have tanked.
CVR Partners, LP also pays a $5.2 dividend for a 16.60% yield, and four out of the 895 hedge funds polled by Insider Monkey for their June quarter of 2022 holdings had invested in the firm.
Ken Griffin’s Citadel Investment Group is CVR Partners, LP’s largest investor. It owns 43,651 shares that are worth $4.3 million.
Enterprise Products Partners L.P., Brookfield Infrastructure Partners L.P., and Targa Resources Corp. met by CVR Partners, LP in our list of hot pipeline and MLP stocks.
5. MPLX LP (NYSE:MPLX)
Number of Hedge Fund Holders: 7
MPLX LP (NYSE:MPLX) is a midstream assets infrastructure and logistics provider that serves the needs of the natural gas, oil, agricultural, and chemicals industries. The firm is headquartered in Findlay, Ohio, the United States.
MPLX LP has a strong balance sheet, with its net leverage ratio of 3.3 providing comfort in a tough macroeconomic environment. The firm also trades at 8.6 times its forward operating income, indicating that the market has confidence in its shares. Finally, MPLX LP also pays a 70 cent dividend for a 9% yield.
Insider Monkey surveyed 895 hedge funds for their June quarter of 2022 holdings to discover that seven had bought a stake in the company.
Out of these, Henry Breck’s Heronetta Management is MPLX LP’s largest investor. It owns 435,337 shares that are worth $12.6 million.
4. Magellan Midstream Partners, L.P. (NYSE:MMP)
Number of Hedge Fund Holders: 9
Magellan Midstream Partners, L.P. (NYSE:MMP) is a crude oil transportation, storage, and distribution provider in the United States. The company transports refined petroleum products such as gasoline, aviation fuel, and kerosene to a host of different entities. It is headquartered in Tulsa, Oklahoma.
Magellan Midstream Partners, L.P. is America’s largest pipeline company, with the firm’s pipelines connected to close to half of the country’s refineries. The firm is also capable of storing an eye popping 100 million barrels of petroleum products.
Another key fact about Magellan Midstream Partners, L.P. is its fortress balance sheet. The latest metrics show that its debt to EBITDA ratio is at 3.7x, and all of its long term debt is maturing after 2025, and only 17% before 2030. All of these leave the firm in a very safe position. Magellan Midstream Partners, L.P. also pays a $1.04 dividend for an 8.69% yield. Insider Monkey’s Q2 2022 hedge fund survey covering 895 funds revealed that nine had invested in the company.
Magellan Midstream Partners, L.P.’s largest investor in our database is Jean-Marie Eveillard’s First Eagle Investment Management which owns 1.5 million shares that are worth $74 million.
3. Brookfield Infrastructure Partners L.P. (NYSE:BIP)
Number of Hedge Fund Holders: 18
Brookfield Infrastructure Partners L.P. is a diversified energy company involved in natural gas and electricity transmission. The firm transmits and transports both of these through its power lines and pipelines, and it also provides electricity and gas connections.
A key strength of Brookfield Infrastructure Partners L.P. is the fact that it is hedged from the seasonal fluctuation of energy demand. Since the firm provides both natural gas and electricity, when the demand for one drops (for example gas demand in summer), the demand for the other goes up. The company also supplies natural gas to Europe through tankers, which provides it with a key advantage in the aftermath of the Russian invasion of Ukraine, which has seen the continent struggle to meet its natural gas needs.
Brookfield Infrastructure Partners L.P. is performing well financially, with its revenue and cash flow growing by 30% and 23% annually over the past decade. It also pays a 36 cent dividend for a 4.18% yield. As this year’s June quarter ended, 18 out of the 895 hedge funds polled by Insider Monkey had invested in Brookfield Infrastructure Partners L.P..
Out of these, Robert Joseph Caruso’s Select Equity Group is Brookfield Infrastructure Partners L.P.’s largest investor. It owns 418,087 shares that are worth $15 million.
2. Enterprise Products Partners L.P. (NYSE:EPD)
Number of Hedge Fund Holders: 23
Enterprise Products Partners L.P. is an American company that engages in the processing and transportation of natural gas and crude oil. The firm owns natural gas processing facilities and trailer trucks to transport oil products. It is headquartered in Houston, Texas.
The second quarter of 2022 was an all round hit for Enterprise Products Partners L.P., as the firm saw both its natural gas pipeline volumes and marine terminal volumes grow. At the same time, its volumes for natural gas liquid fractionation also went up.
All these were evident in Enterprise Products Partners L.P.’s financial results, which saw its operating income, adjusted cash flow from operations, and free cash flows grow by 20%, 58%, and 26% annually, respectively. The company also pays a 47 cent dividend for a 7.6% yield. 23 out of the 895 hedge funds part of Insider Monkey’s Q2 2022 survey had held a stake in the company.
Enterprise Products Partners L.P.’s largest investor is Bruce Berkowitz’s Fairholme (FAIRX) which owns 3.5 million shares that are worth $87 million.
1. Targa Resources Corp. (NYSE:TRGP)
Number of Hedge Fund Holders: 32
Targa Resources Corp. is an American midstream asset owner and developer. The company gathers, treats, processes, and transports natural gas, and it owns thousands of miles of gas pipelines and millions of barrels of storage capacity for natural gas liquids.
Targa Resources Corp.’s second fiscal quarter saw its revenues increase by a whopping 77%, and this growth also translated into its bottom line profits, with the company’s net income growing by a whopping 983% during the same time period. To round off the results, Targa Resources Corp.’s operating income also grew by 84% during Q2 2022.
Targa Resources Corp. pays a 35 cent dividend for a 2.2% yield. As part of their second quarter of 2022 investments, 32 out of the 895 hedge funds polled by Insider Monkey had invested in the firm.
Out of these, Targa Resources Corp.’s largest investor is Stuart J. Zimmer’s Zimmer Partners which owns 3.1 million shares that are worth $185 million.
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This article is originally published at Insider Monkey.
