After underperforming for most of the fall, the energy master limited partnerships (MLPs) have taken a solid turn for the better as the prospects for infrastructure growth have increased dramatically with a Trump administration. While the ultra-high distribution, low-growth companies were the ones that investors tended to favor in the first half of this year, many are starting to realize what the analysts at UBS already know: high yields are eventually unsustainable when there is capital to be raised and can often be adjusted downward.
A new UBS research report adds two to the Top Picks MLP list of stocks. The analyst also noted this in the report:
With investors increasingly seeing the argument of cumulative distributions recently debunked as higher yields are being adjusted through upfront distribution cuts or through backdoor resets, mispriced high-growth is increasingly more attractive.
While the top ideas at UBS are more growth oriented, they all still pay outstanding distributions, and of course, all are rated Buy at UBS.
This company has reported very solid numbers and it may be off the radar for some investors. MPLX L.P. (NASDAQ: MPLX) is a diversified, growth-oriented MLP formed in 2012 by Marathon Petroleum to own, operate, develop and acquire midstream energy infrastructure assets. It is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids; and the transportation and storage of crude oil and refined petroleum products.
The company made a very well-timed and strategic purchase of MarkWest Energy last year for approximately $1.28 billion. The deal combined MarkWest, the second-largest processor of natural gas in the United States and largest processor and fractionator in the Marcellus and Utica shale plays, with MPLX. The combination created one of the largest MLPs, which is expected to generate a mid-20% compound annual distribution growth rate through 2019.
MPLX unitholders receive a 6.27% distribution. The UBS price target for the stock is $43, and the Wall Street consensus target is $39.06. Shares closed trading yesterday at $32.85.
Plains All American Pipeline
This is another of the top stocks on Wall Street that has had the power to withstand the downturn. Plains All American Pipeline L.P. (NYSE: PAA) owns and operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids (NGLs), natural gas and refined products. It owns an extensive network of pipeline transportation, terminaling, storage and gathering assets in key crude oil and NGL producing basins and transportation corridors and at major market hubs in the United States and Canada. On average, Plains All American handles over 4.1 million barrels per day of crude oil and NGL on its pipelines.
The company also has one of the largest storage asset bases, with over 120 million barrels of liquids storage capacity at three major hubs, which are located in Cushing, Oklahoma; Midland, Texas; and Patoka, Illinois.
Investors are paid a 6.76% distribution. The UBS price objective is $34. The consensus price target is $31.93. Shares closed Wednesday at $32.95, up over 11% on the day.