In this piece, we will take a look at the 11 best pipeline and MLP stocks to buy. If you want to skip our industry primer and head on to the top five stocks in this list, then take a look at the 5 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 (NYSE:DKL) 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 (NYSE:DKL) 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 (NYSE:DKL) pays a sizable dividend of 98 cents for a 7% yield.
Along with Targa Resources Corp. (NYSE:TRGP), Enterprise Products Partners L.P. (NYSE:EPD), and Brookfield Infrastructure Partners L.P. (NYSE:BIP), Delek Logistics Partners, LP (NYSE:DKL) 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 (NYSE:SUN) 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 (NYSE:SUN)’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 (NYSE:SUN) 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 (NYSE:SUN)’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 (NASDAQ:GPP) is headquartered in Omaha, Nebraska.
Instead of crude oil or other traditional fuel products, Green Plains Partners LP (NASDAQ:GPP) 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 (NASDAQ:GPP) 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 (NASDAQ:GPP) 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 (NASDAQ:GPP)’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. (NYSE:HEP)’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. (NYSE:HEP)’s latest free cash flows stand to grow at 15.5%.
Holly Energy Partners, L.P. (NYSE:HEP) 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. (NYSE:HEP)’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 (NYSE:DCP)’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 (NYSE:DCP) 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 (NYSE:DCP) 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 (NYSE:DCP)’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 (NYSE:UAN) 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 (NYSE:UAN) 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 (NYSE:UAN) 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 (NYSE:UAN)’s largest investor. It owns 43,651 shares that are worth $4.3 million.
Enterprise Products Partners L.P. (NYSE:EPD), Brookfield Infrastructure Partners L.P. (NYSE:BIP), and Targa Resources Corp. (NYSE:TRGP) met by CVR Partners, LP (NYSE:UAN) in our list of hot pipeline and MLP stocks.
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Disclosure: None. 11 Best Pipeline and MLP Stocks to Buy is originally published on Insider Monkey.