Traditionally, dividend payments, if a company chooses to make them, have been doled out on a quarterly basis, with some stingier companies only putting money in your pocket once a year. However, a select group of companies have chosen to reward their investors on a monthly basis. Now, oil and gas producer Linn Energy LLC (NASDAQ:LINE) and its affiliate LinnCo LLC (NASDAQ:LNCO) have decided to join that select group.
Is it possible that we’ll see more companies make the switch to monthly dividend payments? I think the answer is yes; but before we get into that, let’s first consider why a company would switch to monthly payouts in the first place.
Among Linn Energy LLC (NASDAQ:LINE)’s peers in this select group is Vanguard Natural Resources, LLC (NASDAQ:VNR). Both LINN and Vanguard Natural Resources, LLC (NASDAQ:VNR) are structured similar to an MLP for tax purposes. This structure leads to high distributions, because it requires nearly all of the company’s earnings be returned to investors. The similarities don’t end there, as both Linn Energy LLC (NASDAQ:LINE) and Vanguard are engaged in the production of oil and gas.
The reason these companies exist is to turn mature oil and gas wells into income sources for investors. That’s why when Vanguard Natural Resources, LLC (NASDAQ:VNR) made the switch last year. Its CFO Richard Robert commented:
We have listened to investors and we believe that we are giving them what they want. A monthly distribution should allow investors to better manage their finances by matching their monthly cash outflows with monthly cash inflows. In addition, a monthly distribution will allow us to reward our investors in a timelier manner as we make accretive acquisitions in the future. We believe the decision to pay distributions monthly rather than quarterly will be welcomed by both our current Vanguard Natural Resources, LLC (NASDAQ:VNR) unitholders as well as other potential investors looking to invest in high yielding energy securities.
This move has indeed been welcomed by investors, which is why Linn Energy LLC (NASDAQ:LINE) is now following suit. So, while Vanguard was first to the market, and even trademarked the fact that it’s the “monthly distribution MLP,” I think you’ll see even more energy MLPs joining the group.
While both Vanguard Natural Resources, LLC (NASDAQ:VNR) and Linn Energy LLC (NASDAQ:LINE) are oil and gas producers, I think that oil and gas midstream companies will be the next to make the move. A company like Enterprise Products Partners L.P. (NYSE:EPD) would make a great, though unlikely, candidate. Enterprise Products Partners L.P. (NYSE:EPD) has raised its distribution for 35 consecutive quarters, and it has a long pipeline of visible growth projects with $7.5 billion of projects planned through 2015, indicating future distribution growth. Further, its interests are aligned with investors, so if its investors wanted to be paid more often, I think that Enterprise Products Partners L.P. (NYSE:EPD) would be willing to make that switch.