High yielding master limited partnerships are some of the most attractive investments for dividend investors. These partnerships pay out heavy cash distributions and attract investors who want to have a regular stream of income. However, the prospect of regular income is not the sole characteristic of these MLPs. Some of these partnerships have shown considerable price appreciation.
Energy Transfer Partners LP (NYSE:ETP) has gained about 14% in the last year and Enterprise Products Partners L.P.(NYSE:EPD) has appreciated by over 16% during the same time period. However, Kinder Morgan Energy Partners LP (NYSE:KMP) has recorded less than impressive growth of 1.3%, but it still remains one of the best yielding partnerships in the market.
Prospects of the industry
The American shale gas boom has opened a huge window of opportunity for these companies. The problem of oversupply in the domestic market prompted the industry players to find ways to match the supply with demand in the future. In this regard, natural gas exports to Mexico have played a vital role in supporting the domestic natural gas prices. Along the way, natural gas pipeline owners have benefited substantially and prospects look even brighter.
U.S. natural gas exports to Mexico have been increasing at a rapid pace. The trade gives an advantage to both countries. The U.S. is solving the issue of oversupply in the domestic market and the energy giants will benefit from the exports. At the same time, Mexico is getting cheap natural gas to support the manufacturing boom in the country. In fact, low natural gas prices have made Mexico an attractive place to invest and a lot of global manufacturing giants are looking to set up production plants in the country — General Motors, Honda, and Nissan to name a few.
As demand for natural gas keeps on rising, owners of natural gas pipelines will continue to benefit. As a result, I believe these partnerships will continue to grow over the next five years.
How will these three partnerships perform?
First of all, let’s take a look at Energy Transfer Partners LP (NYSE:ETP). The biggest criticism for this partnership has been the stagnation in cash distributions. Investors have been disappointed as a consistent increase in cash distributions is one of the most attractive features of MLPs. The obvious reason for not increasing the cash distributions was that the partnership was not able to generate enough distributable cash flow to increase its distributions.