12 Best MLP and Pipeline Stocks To Buy Now

MLP structure has been around since 1981. It was when oil and gas producer Apache Petroleum Corporation (APA) started offering investors the tax advantage of a partnership with the liquidity of publicly traded securities like stocks and bonds. The model was so successful that most companies in different industries started duplicating it. However, Congress made a decision to limit these types of businesses with the Tax Reform Act of 1986 and the Revenue Act of 1987. These laws determined that an MLP must earn at least 90% of its gross income from qualifying sources to obtain the tax benefits of a pass-through.

If you are an investor trying to avoid double taxation and gain income, consider MLP stocks for your portfolio. Investing in MLPs are low risk because they are considered slow-growing industries, like pipeline construction. They usually earn stable income with long-term contracts. And offer steady cash flows and consistent cash distribution. On the negative side MLPs are difficult to deal with if you are doing your own taxes. Some of the MLP income is taxed as ordinary income and the rest goes towards reducing your cost basis. So, the actual yield of an MLP isn’t really comparable to the actual yield of ordinary dividend stocks that are usually taxed at lower long-term rates.

Pipeline companies make up the majority of MLPs. America alone has a pipeline system of 1.38 million miles. It is the business of transporting oil, natural gas, refined petroleum products and natural gas liquids primarily through pipelines.

With the Biden administration’s goal of net-zero carbon emissions by 2050. It may be tough on new petroleum pipeline projects but it will potentially increase the value of existing ones. President Barack Obama’s last Supreme Court nominee, Merrick Garland said that higher corporate taxes favored by Democrats could increase the value of master limited partnerships (MLPs) that proliferated under Obama’s administration.

“There is no question that, from a regulatory standpoint, it is going to be a tougher environment for all kinds of infrastructure, but the energy in particular. Making it harder to build pipelines will also make existing infrastructure more valuable. You can make the case that the existing pipes are probably worth more in the ground, under that kind of a scenario,”

Based on a study conducted by the business and research company, the global pipeline market transport market is expected to grow from $170.6 billion in 2020 to $180.3 billion in 2021 at a compound annual growth rate of 6%. The market is expected to reach $262.1 billion in 2025 at a CAGR of 10%.

In order to identify the 12 best MLP and pipeline stocks to buy now, we started with the 25 holdings in the Global X MLP & Energy Infrastructure ETF (MLPX) as of December 31, 2020, and we were able to narrow down our list to 12 stocks by using our hedge fund sentiment scores.

Our in-house analysis shows that we can use the sentiment information gathered from the hedge fund filings to classify in advance a select group of stocks that can beat the S&P 500 index by double digits annually on average. For instance, the portfolio of  our monthly newsletter’s stock picks has beaten the market by over 88 percentage points since March 2017 (see the details here). Some of the portfolio holdings of our monthly newsletter have been shared online too. In October, we shared this real estate stock and since then, it’s been up nearly 50 percent.

Based on our hedge fund sentiment data, we present to you, the 12 Best MLP & Pipeline Stocks to Buy Now among the 800+ hedge funds by Insider Monkey:

12. Plains Gp Holdings, LP (NASDAQ:PAGP)

No of HFs: 18

Total Value of HF Holdings: $74 Million

Yield: 8.5%

We start the list of best MLP and pipeline stocks to buy now with Plains Gp Holdings, LP. The company focuses on providing midstream energy infrastructure in the United States and Canada. Plains handle more than 6 million barrels per day of crude oil and NGL in its transportation segment.

The company only recently transferred its stock exchange listing from NYSE to the Nasdaq global select market with the aim to reduce cost. Willie Chiang, PAGP’s CEO said,

The transfer from NYSE to Nasdaq aligns with Plains’ ongoing commitment to reduce cost. We thank the NYSE for their valued partnership with Plains for more than 20 years, and we look forward to our new relationship with Nasdaq.”

11. Antero Midstream Corporation (NYSE:AM)

No of HFs: 19

Total Value of HF Holdings: $137 Million

Yield: 15.95%

Antero Midstream Corporation is an independent natural gas and oil company that provides rich gas production in two of the lowest-cost natural gas and natural gas liquids basins in North America: Marcellus Shale and Utica Shale.

The company recently announced its intention to offer $500 million in aggregate principal amount of senior unsecured notes due 2026 in a private placement to eligible purchasers. The company intends to use the proceeds to fund the redemption of $350 million aggregate principal amount of its 5.125% senior notes due 2022 (the “2022 Notes”) and the remaining net proceeds to repay borrowings under its credit facility.

10. Magellan Midstream Partners, LP. (NYSE:MMP)

No of HFs: 20

Total Value of HF Holdings: $101 Million

Yield: 9.9%

MMP ranks 10th in our list of the best MLP and pipeline stocks to buy now. Magellan Midstream Partners, LP engages in the transport, storing, and distributing refined petroleum products and ammonia. The company operated three segments: refined products, crude oil, and marine storage. During the third quarter of 2020, the company reported a net income of $211.6 million.

The top hedge fund holder of this stock is Ari Zweiman’s 683 Capital Partners which had over $49 million invested in the stock at the end of September. An insider recently purchased 20000 shares at around $35. The stock is up more than 20% since then.

9. Oneok, Inc. (NYSE:OKE)

No of HFs: 20

Total Value of HF Holdings: $239 Million

Yield: 10%

Oneok, Inc. allows prolific supply basins to connect with key market centers. OKE announced that Gerald B. Smith, the founder, chairman, and chief executive officer of Smith Graham and Company Investment Advisors rejoins the company as a director to the board. John W. Gibson, ONEOK chairman believes that their board and shareholders will benefit from Smith’s rejoining.

“We appreciate Gary’s long-term commitment and service to our company and wish him well in his next chapter. We’re pleased to welcome Gerald back as a member of our board of directors. Our board and our shareholders will benefit from Gerald’s board experiences and proven leadership skills, in addition to his broad knowledge of ONEOK.”

8. Enbridge, Inc. (NYSE:ENB)

No of HFs: 25

Total Value of HF Holdings: $342 Million

Yield: 8.2%

Enbridge, Inc. was established in 1949. It is an energy infrastructure company that focuses on transportation and the generation of energy. They operate the longest crude oil and liquid hydrocarbons transportation in North America.

Recently, the company announced that its Board of Directors has declared a quarterly dividend of $0.835 per common share, payable on March 1, 2021, to shareholders of record on February 12, 2021.

The top hedge fund holder of this stock is Ken Griffin’s Citadel Investment Group which had over $103 million invested in the stock at the end of September.

7. Equitrans Midstream Corporation (NYSE:ETRN)

No of HFs: 25

Total Value of HF Holdings: $432 Million

Yield: 7.5%

Equitrans Midstream Corporation is a natural gas gatherer in the United States. They own and operate midstream assets in the Appalachian Basin. And provide midstream services to EQT Corporation and multiple third-parties in Pennsylvania, West Virginia, and Ohio.

In an unfortunate incident, the companies’ compressor station in Morris Township exploded and the reason is still unknown today but the investigation is ongoing. Billionaire Dan Loeb has more than $100 million invested in ETRN.

6. Enterprise Production (NYSE:EPD)

No of HFs: 30

Total Value of HF Holdings: $178 Million

Yield: 9.2%

Enterprise Production generally provides products that are used as feedstocks in petrochemical manufacturing. The company was ranked 105^th in the 2018 Fortune 500 list of largest United States corporations by revenue.

EPD recently announced the first time they loaded a liquefied petroleum gas-powered vessel. The vessel was loaded with a record of 590,000 barrels of LPG, including cargo fuel. A.J. “Jim” Teague, co-chief executive officer of Enterprise’s general partner said that the milestone achievement will benefit both the supply and demand sides of the LPG value chain.

“Enterprise is proud to be part of this milestone achievement which benefits both the supply and demand sides of the LPG value chain, provides environmental benefits and improves the lives of people around the world. LPG-powered vessels provide another source for growing U.S. shale production and offer enhanced efficiencies and economics for ship owners and their customers by allowing VLGCs to refuel at the loading dock instead of making an additional stop at a bunkering facility. Enterprise is already the largest exporter of propane in the world, and is helping to raise the standard of living and improve the health and quality of life for developing nations around the globe.”

5. Targa Resources Corporation (NYSE:TRGP)

No of HFs: 30

Total Value of HF Holdings: $295 Million

Yield: 1.5%

Targa Resources Corporation is one of the leading providers of midstream services. During the third quarter of 2020, the company reported a distributable cash flow and free cash flow before dividends of $294.7 million and $189.3 million.

The top hedge fund holder of this stock is Steve Cohen’s Point72 Asset Management which had $40 million invested in the stock at the end of September.

Suwin/Shutterstock.com

4. Energy Transfer LP (NYSE:ET)

No of HFs: 31

Total Value of HF Holdings: $427 Million

Yield: 17.3%

Energy Transfer LP is engaged in natural gas and propane pipeline transport. The company is responsible for developing the Dakota Access Pipeline. The DAPL is a 1,172-mile-long underground oil pipeline that begins in the shale oil fields of the Bakken formation and continues through South Dakota and Iowa to an oil terminal near Patoka, Illinois.

Billionaires David Abrams and David Tepper each has more than $100 million invested in ET at the end of September.

3. Williams Cos. (NYSE:WMB)

No of HFs: 38

Total Value of HF Holdings: $581 Million

Yield: 8%

The third best MLP and pipeline stock to buy now is Williams Cos Inc. The company provides the infrastructure that safely delivers natural gas. They are focused on connecting North America’s hydrocarbon resource to growing markets for gas.

The company announced that its board of directors appointed Rose Robeson as an independent board. Rose was a chief financial officer of DCP Midstream, the largest natural gas liquid producer and gas processor in the United States. Stephen W. Bergstrom, chairman of the Williams Board of Directors said that Rose is an excellent addition because of her accomplished career and commitment across the energy value chain.

“The Williams Board is pleased to welcome an outstanding new director in Rose, who brings tremendous financial expertise and deep industry experience from across the energy value chain. Rose’s accomplished career and commitment to strong corporate governance makes her an excellent addition to the growing diversity of the Williams Board and positions the company to continue to deliver long-term, sustainable value and growth for our shareholders.”

2. Cheniere Energy Inc (NYSE:LNG)

No of HFs: 40

Total Value of HF Holdings: $1.97 Billion

Yield: NA

Cheniere Energy Inc. is the biggest exporter of natural gas in the US. The company was mentioned in an article about 11 Countries with Highest Natural Gas Reserves. The company owns and operates liquified natural gas receiving terminals and liquified natural gas pipelines.

In an article, Horizon Kinetics mentioned some of their comments for the stock.

“Given the abundance of natural gas being produced in the United States right now, Cheniere has embarked upon an expansion strategy, which will consist of three additional trains at a new export facility in Corpus Christi, Texas (strategically located near the Permian Basin). Commercialization of two of these trains is expected to occur in 2019, with the total project reaching completion in 2021. Based on current plans, the company will have nine full-size trains operating overall, as well as several smaller trains at the Texas location.

Cheniere is in the middle of a long-term growth expansion that will add significant capacity in coming years (and quite a bit in 2019 alone). It currently has $32 billion in total assets (and $28 billion of debt). One way to roughly estimate the earnings power of this balance sheet is to compare the returns of the oil/gas pipeline companies – a somewhat similar set of regulated energy companies with long-term revenue contracts. Based on a sample of the largest pipeline operators, the after-tax return on assets is in the range of 3%-10%. If Cheniere can only earn a 6% ROA, it would generate over $7/share of net earnings. At a low multiple of 12x, the share price would be $89, which is a significant premium over the current price.

Additionally, only half of the company’s assets are actually operational, while the balance still represents construction-phase projects. Based on income recorded in 2018 relative to the operational assets, the longer-term ROA (when all construction is finished and the assets are mobilized) might be closer to 8%. This would suggest a share price of roughly $120, which is twice the current price.”

1. Kinder Morgan, Inc. (NYSE:KMI)

No of HFs: 46

Total Value of HF Holdings: $939 Million

Yield: 7.7%

The top one best MLP and pipeline stock to buy now is Kinder Morgan, Inc. They are one of the largest energy infrastructure companies in North America. They own interest and or operate 83,000 miles of pipelines and 147 terminals. KMI was mentioned as of the 10 Best Dividend Stocks Under $20 and one of the 5 Dividend Stocks to Boost Cash Flow in 2021.

For 2021, the company remains committed to maintaining a strong balance sheet as they announced their preliminary financial projections. Steve Kean, KMI’s chief executive officer said that in 2021, they expect to generate $2.1 billion in net income.

“In 2021, we expect to generate $2.1 billion in net income attributable to KMI, $2.0 billion more than our 2020 forecast, due primarily to asset and goodwill impairments taken during 2020. We also expect to generate $4.4 billion in DCF during 2021, approximately 3% below our current forecast for 2020 DCF. DCF will be negatively impacted by lower re-contracting rates on certain Natural Gas Pipeline segment assets (mainly Ruby and FEP pipelines, as we have noted for the last couple of years), lower crude volumes and realized prices in the CO₂ segment, lower capitalized overhead as a result of lower discretionary capital expenditures, and higher sustaining capital expenditures partially offset by projects placed in service and increased refined product volumes. DCF less discretionary capital expenditures and dividends is expected to be $1.2 billion, an improvement of more than $700 million compared to our 2020 forecast. Our budget guidance includes savings from a corporate-wide organizational efficiency and effectiveness project that resulted in approximately $100 million in annual costs savings to KMI and an expected 2021 DCF benefit of $72 million, taking into account partial year savings in 2020, allocations to capital, and other items. We will go into greater detail on that process when we present our budget on January 27”

Please also see 12 Best Infrastructure Stocks to Buy Now and 15 Best E-Commerce Stocks to Buy Now.

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Disclosure: No positions. 12 Best MLP and Pipeline Stocks To Buy Now is originally published at Insider Monkey.