After a decade-long loose monetary policy instituted by the US Federal Reserve Bank (FRB) and global central banks, as well as the recently revealed near zero interest rate policy (otherwise known as ZIRP) out to 2014, investors have started searching for yield. Investors have been scooping up corporate and high yield bonds, blue-chip equities with high dividend yields and longer-term US treasuries, which may even be losers on an inflation adjusted basis. We think MLPs may fit the bill as an alternative for those seeking dividend yield.
What makes MLPs so attractive to investors is that the way they’re structured, they must return 90% of total income to shareholders via dividend payments. Since there is no tax at the company level, Master Limited Partnerships essentially enjoy a lower cost of capital and avoid dividend double taxation. With just over one hundred MLPs publicly available for investment we feel that the following companies warrant the attention of dividend seekers.
Enbridge Energy, LP (NYSE: EEP) formally known as Lakehead Pipeline, owns and operates crude oil and liquid petroleum transportation and storage assets, as well as natural gas gathering, treating, processing, transmission, and marketing assets in the United States. The company presently sports an attractive 6.70% yield ($ 2.13 dividend distribution per share/unit) and has increased its cash distribution by 70% in the past twenty years. Although analysts are projecting 2012 average earnings per share (EPS) year-over-year (YOY) increase of roughly 3.5% from that of 2011, a more robust average EPS growth rate of nearly 12% is anticipated for fiscal year 2013. Additionally, for those investors seeking peace of mind and resting their head comfortably on the pillow, EEP has a beta of 0.81 relative to market volatility, which provides a lower-risk proposition to its investors, while enjoying a steady stream of income, not to mention, unit holders being the recipients of numerous stock splits during the past two decades. Billionaire Jim Simons’ Renaissance Technologies initiated a brand new position in Enbridge Energy during the fourth quarter.
In following with the EEP theme, Buckeye Partners L.P. (NYSE: BPL) also sports a very attractive 6.70% yield. Much like Enbridge, BPL owns and operates refined petroleum products pipeline systems in the United States. Its Pipelines and Terminals segment transports refined petroleum products and provides bulk storage and terminal throughput services in the continental United States. This segment owns and operates approximately 6,100 miles of pipeline systems in 16 states; and has 100 refined petroleum products terminals in 21 states with aggregate storage capacity of approximately 37.4 million barrels. While analysts are projecting year-over-year earnings per share/unit growth of roughly 5.5% for fiscal year 2012, a healthy 14.5% growth rate in earnings is anticipated in 2013. Furthermore, BPL has delivered consistent dividends, whereby investors have been treated to six years of consecutive quarterly distribution increases dating back to January 2006, as well as sporting a very low beta of 0.36 relative to overall market volatility, providing investors with a high yield low-risk business model.
Competitor Kinder Morgan Energy Partners (NYSE: KMP) is yet another MLP whom offers investors a solid 5.50% yield ($ 4.64 dividend distribution per share/unit) and has apparently garnered the attention of one of the world’s wealthiest individuals in Fayez Sarofim, fund manager of the Dreyfus family of funds whom Forbes ranked as the 428-richest person in the world . In the same vein as both EEP and BPL, the company operates as a pipeline transportation and energy storage company in North America. Its Products Pipelines segment delivers gasoline, diesel fuel, jet fuel, and natural gas liquids to various markets through approximately 8,400 miles of refined petroleum products pipelines; and operates 60 associated product terminals and petroleum pipeline transmix processing facilities. For fiscal year 2012, analysts are projecting average earnings per share growth of just over 38% from that of 2011, while 2013 projections are a more modest 10%. Nevertheless, like its brethren EEP and BPL, KPM also sports a very low beta of 0.46 allowing potential investors to participate in solid yield devoid of much of the market’s volatility. Michael Messner’s Seminole Capital had the largest stake in KMP among the 375 hedge funds we are tracking.
Enterprise Products Partners LP (NYSE: EPD) is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products and petrochemicals. EPD transports natural gas, NGLs, crude oil and refined products through 50,200 miles of onshore and offshore pipelines. Although EPD’s yield of 4.80%, not too shabby, is a bit smaller than its competitors previously mentioned, the company has increased its quarterly dividend distribution in 39 consecutive quarters dating back to July 2002. With respect to earnings, analysts are projecting 1.5% growth for 2012 and a healthier 7.8% in 2013. For those investors seeking relative volatility, EPD fills such requirement with a 0.68 beta, while delivering a solid dividend yield. Osterweis Capital had more than $71 million invested in EPD at the end of December.
With interest rates flirting near zero percent, MLP’s offer potential investors solid and reliable dividend income. While one assumes market risk with any publically traded company, the aforementioned MLP’s provide low-risk business models that may warrant the attention of income seekers.