Over the course of this year we have written at great length on master limited partnerships (MLPs) and the potential for investors to receive solid total returns from these stocks. Year to date, the Alerian MLP Total Return Index (AMZX) has produced a total return of 20.2%, versus 11.7% for the S&P 500. Needless to say, outperformance of that magnitude may not continue throughout the balance of 2013. Now it becomes extremely important for investors to look for the MLP stocks that will increase distributions, while continuing to grow their business.
The MLP research team at Merrill Lynch agrees with that theory and, in a new report out today, highlight the stocks they think can grow and expand their current business models, while increasing their distributions to shareholders. We always like to remind our readers that distributions from MLP stocks may contain return of principal.
We screened the Merrill Lynch top picks for the stocks to buy that may have the highest distribution increases.
Access Midstream Partners L.P. (NYSE: ACMP) fits the model, as it just increased its distribution last week by 4%. Merrill Lynch’s price target for the stock is $44. The Thomson/First Call estimate is also $44. Unitholders receive a 4.40% distribution.
Buckeye Partners L.P. (NYSE: BPL) recently hit a 52-week high. The Merrill Lynch price target for this top name is $65. The consensus price target is much lower at $58.50. Buckeye pays a 6.60% distribution.
Enbridge Energy Partners L.P. (NYSE: EEP) owns the U.S. portion of the world’s longest liquid petroleum pipeline, which transports crude oil and natural gas from western Canada to refining centers in the Midwest and Ontario, Canada. Merrill Lynch’s target for the stock is $32. The consensus estimate is $30. Enbridge pays a 7.40% distribution.
Enterprise Products Partners L.P. (NYSE: EPD) reported solid numbers today. The Merrill Lynch price objective for the stock is $64. The consensus target is also $64. Unitholders receive a 4.40% distribution.
Genesis Energy L.P. (NYSE: GEL) is another top pipeline name. Merrill Lynch has a $50 price target. The consensus estimate is at $47. Genesis pays a 4.20% distribution.
Inergy Midstream L.P. (NYSE: NRGM) just increased its distribution for the fourth consecutive time. Merrill Lynch has a $27 price target. The consensus is $26. Unitholders are paid a 6.20% distribution.
Markwest Energy Partners L.P. (NYSE: MWE) just raised its payout 5.1% year-over-year. Merrill Lynch has a $64 target. The consensus target is $61. Unitholders are paid a 5.30% distribution.
Plains All American Pipeline L.P. (NYSE: PAA) rounds out the Merrill Lynch list. This widely held named recently raised its distribution 10% and has increased its payout for 15 straight quarters, and 34 of the past 36 quarters. Merrill Lynch’s price objective is $58. The consensus estimate is close at $57. Unitholders are paid a 4.00% distribution.
There are three key vehicles that offer diversification in the MLP sector as well. Two key ETFs are JPMorgan Alerian MLP Index ETN (NYSEMKT: AMJ) and ALPS Alerian MLP ETF (NYSEMKT: AMLP). The key closed-end fund for this sector is the Kayne Anderson MLP Investment Co. (NYSE: KYN), although we would remind investors that this fund employs leverage in its holdings.
Growing distributions while growing the business, that is the key for MLP stocks for the rest of 2013. Investors can anticipate yields will stay low for the foreseeable future. So even if the total return figures for the sector slow the rest of the year, they should still provide solid returns for investors.