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MLPs are getting shunned now that oil is trading near $50 a barrel, but many are offering yields that are more than three times what you’ll get investing in the S&P 500.
For yield-seekers, it’s been hard to find a better investment than master limited partnerships (MLPs) over the last few years. That’s part of the reason I’ve been touting the benefits of high-yield MLPs for several months now – especially as many have been sold off, unjustly, due to the collapse in oil prices.
And with that, many commodity-related MLPs are getting punished. Even MLPs that deal with natural gas, and not oil.
And after President Obama vetoed the Keystone XL oil pipeline proposal last week, MLPs have once again sold off. But I view this as just another buying opportunity. Pipelines are still a major part of moving natural gas and oil across the country, and in some cases, proving to be safer.
Recall that just yesterday a Burlington Northern train (owned by Warren Buffett’s Berkshire Hathaway) carrying crude oil derailed and burst into flames in Illinois.
But the market is sometimes irrational. For instance, back in early 2014 I profiled three high-yield MLPs, which were all yielding 7% or more. Two of those MLPs (Kinder Morgan Energy Partners LP and El Paso Pipeline Partners LP) were bought out last year, and the other – Enbridge Energy Partners LP (NYSE: EEP) – is up nearly 40% since then, and is still yielding a hefty 6%.
With the selloff of everything oil-related, the Alerian MLP ETF (NYSEArca: AMLP) is yielding an impressive 6.7%, which is more than many of the largest MLPs. That means many investors might just settle for that type of yield. But studious investors can find solid high-yield MLPs given the state of the current energy industry.
So, we’re back again this year with the top three yielding MLPs. All three offer yields well above 7%. Here are the top three high yielding MLPs for today:
No. 1 High-Yield MLP: ONEOK Partners LP (NYSE: OKS)
First up is one of the major transporters of natural gas and natural gas liquids (NGLs) in the U.S., ONEOK Partners. It offers a 7.7% yield and has a nine-year streak of consecutive distribution increases.
ONEOK focuses on the mid-continent region of the United States and also has an equity interest in a major transporter that moves natural gas from Canada to the U.S.
Right now, ONEOK is focused on becoming more of a NGL transportation player, to help support its already robust NGL gathering and processing capabilities. But it also has its hands in other crude-related markets, including ethane and petrochemicals.
No. 2 High-Yield MLP: Targa Resources Partners LP (NYSE: NGLS)
Targa Resources Partners has been one of the harder hit MLPs over the last six months, with its stock down 40%. It now yields 7.6% and has upped its distribution for five straight years.
Targa Resources Partners is another player that has little to do with oil and everything to do with natural gas.
It’s a natural gas midstream player that gathers and process natural gas and NGLs. It has a strong presence in Permian Basin down around the Gulf Coast, which is becoming a hotbed in terms of demand for processing NGLs.
And it’s shifting toward a fee-based revenue model. This will help reduce the risk of fluctuating commodity prices, as Targa will get paid set fees based on production.
No. 3 High-Yield MLP: DCP Midstream Partners LP (NYSE: DPM)
DCP Midstream Partners is one of the top natural gas processors, NGL pipeline operators and NGL producers in the U.S. – ranking in the top three for each of those categories. It’s controlled by Spectra Energy (NYSE: SE) and Phillips 66 (NYSE: PSX), both of which are large, stable partners.
One of the real beauties of DCP is that it’s not as impacted by commodity price movements as some MLPs. Around 95% of its contracts are fee-based, so they get paid to produce and move natural gas, regardless of the commodity’s price.
Offering an 8.1% distribution yield, it’s one of the highest yielding MLPs around. DCP also has a five-year streak for consecutive annual distribution increases.
In the end, there are still plenty of solid crude-related pipeline MLPs out there for investors. But for investors who would rather take advantage of energy volatility and lock in some high yields, the three MLPs listed above are very interesting.
Saudi Arabia’s Plot Backfires!
When the Saudis announced they would not cut production to bolster oil prices, the intent was obvious. The move was meant to drive down crude prices, and punish the U.S. oil industry. The US had already over taken both Saudi Arabia and Russia in crude production – and the Arabs thought they could stop it with this move. WRONG! And we’ve found a great way for the average guy to cash in.