Liquefied natural gas (LNG) is plentiful, is a clean alternative and is quickly growing in demand around the globe. The product is natural gas that has been converted to liquid form for ease of storage or transport. It takes up about 1/600th the volume of natural gas in the gaseous state. It is odorless, colorless, non-toxic and non-corrosive.
Shipping companies that transport the product are in a favorable business cycle, and the analysts at Jefferies are out with a with a bullish call on the LNG shipping master limited partnerships. The analysts cite the improving industry fundamentals, with shipping demand growth set to outpace shipping supply growth through at least 2020. They also have three companies rated Buy that are paying big distributions.
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 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 good 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 investors are paid a stunning 11.18% distribution. The Jefferies price target is set at $18, and the Wall Street consensus price target for the stock is $15.29. Shares closed Friday at $15.12.
This is another solid play for more aggressive income accounts. GasLog Partners L.P. (NYSE: GLOP) is a self-described growth-oriented international owner, operator and manager of LNG carriers, providing support to international energy companies as part of their LNG logistics chain. Its owned fleet consists of 18 wholly-owned LNG carriers, including 11 vessels on the water and seven ships to be delivered.
The Jefferies report noted:
The distinguishing feature of GasLog Partner relative to the other LNG MLPs is the considerable drop down inventory relative to the size of the Partnership’s current footprint with the company currently operating seven LNG vessels with medium to long term contracts attached along with six LNG vessels to be delivered in 2016 -2019 with medium to long term contracts already attached. Due to this significant dropdown pipeline, we expect GLOP to acquire an average of 1-2 vessels per year going forward, providing significant visibility for further distribution growth.
Shareholders are paid a 9.83% distribution. The Jefferies price objective is $24, and the consensus target is $22.75. The shares closed last Friday at $19.46.
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 shareholders are paid a massive 12.01% distribution. Jefferies has a $25 price target on the stock, and the consensus target is $20. The shares closed last Friday at $19.24.
Three outstanding companies for income investors of all risk tolerance levels. Again, while rates could go higher, they will still 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 the rest of 2016. With LNG in big demand, this is a good long-term sector story.