Despite all the consternation Friday about the possibility of the Federal Reserve raising rates in September, the bottom line is it likely wait until December to let the political cycle play out, and as we have said before, rate increases will be small and the pace very slow. One good path for income investors is to still think energy master limited partnerships (MLPs), as much of the bad news and lower oil and natural gas pricing has long since been factored in.
Stifel has seven MLPs on its income list, and we screened this list for the highest yielding companies. We found four that look outstanding, and all are rated Buy at Stifel.
Dynagas LNG Partners
The company has continued to pay an outstanding distribution to unitholders. Dynagas LNG Partners L.P. (NYSE: DLNG) operates in the seaborne transportation industry worldwide. The company owns and operates liquefied natural gas (LNG) vessels. As of March 31, 2016, its fleet consisted of six LNG carriers, each of which has a carrying capacity of approximately 150,000 to 155,000 cubic meters. Dynagas GP serves as the general partner of Dynagas LNG Partners.
The company has continued to increase the distribution, and with U.S. LNG exports expected to jump dramatically, this could be a solid play for aggressive income investors. The stock has seen some solid earnings estimate revision activity over the past month, and that suggests that Wall Street analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term.
Dynagas LNG Partners investors are paid a stunning 11.13% distribution. The Stifel price target for the stock is $18, and the Wall Street consensus target is $14.83. Shares closed Friday at $15.18.
Golar LNG Partners
This is another LNG shipping and storage play that holds a big distribution for shareholders. Golar LNG Partners L.P. (NASDAQ: GMLP) owns and operates floating storage regasification units (FSRUs) and LNG carriers under long-term charters in Brazil, the United Arab Emirates, Indonesia and Kuwait. The company also engages in the leasing of its fleets.
The Marshall Islands based company has a fleet of six FSRUs and five LNG carriers, a combined average remaining useful life of 25 years, and an average remaining charter duration of five-plus years. The company posted solid second-quarter results and also was successful in lowering leverage.
Golar LNG Partners shareholders receive a massive 11.53% distribution. Stifel has a $25 price target, and the consensus target is lower at $19.72. The shares closed last Friday at $20.04.
Green Plains Partners
This clean energy stock has gained a strong Wall Street following. Green Plains Partners L.P. (NASDAQ: GPP) is an unconventional renewable energy pick, but with a market capitalization just over half a billion dollars and a big dividend yield, this company could be a nice income or growth hold. The Nebraska-based company specializes in the storage, processing and transportation of ethanol fuel. Ethanol is already a major component of current fuel options. Most retail gasoline contains some ethanol, but there is a push to increase the use of pure ethanol fuel for commercial purposes.
Demand for renewable liquid fuels is expected to grow twofold by 2030, and fourfold by 2040. Green Plains is looking to capitalize on this push and adoption by providing the infrastructure that will underpin the industry as it expands.
This is another company that posted strong second-quarter results that came in above the analysts’ estimates. Green Plains also posted an 11% quarter-over-quarter increase in storage and throughput volumes in the second quarter as Green Plains Inc. crush margin meaningfully improved.
Green Plains Partners shareholders receive an 8.55% distribution. The $20 Stifel price target compares with the consensus target of $19.13, but the shares closed Friday at $19.18.
Spectra Energy Partners
This company has posted very solid earnings and looks to continue raising distributions. Spectra Energy Partners L.P. (NYSE: SEP) is one of the largest pipeline MLPs in the United States and connects growing supply areas to high-demand markets for natural gas, NGLs and crude oil. These assets include more than 17,000 miles of transmission and gathering pipelines, approximately 170 billion cubic feet of natural gas storage and approximately 4.8 million barrels of crude oil storage.
The stock is also investment grade rated BBB and stable, and top analysts cite the company’s long term, take-or-pay contracts and a robust project backlog with high credit quality counterparties. This offers investors a company with very visible cash flow growth with minimal direct or indirect commodity price exposure. That is almost the ideal situation with the pricing still highly volatile.
Spectra Energy investors receive a very solid 6.11% distribution. The Stifel price target is $55. The consensus target is $53.33, and the shares closed Friday at $43.42.
These are four outstanding companies for income investors of all risk-tolerance levels. Again, while rates could go higher, they will remain historically low for what could be years, and the oil and gas business could very well rally higher after being stuck in a trading range for the rest of 2016.