The projected proceeds of the sale are put at about $825.1 million, which comes to roughly $36.24 per unit.  The most recent price was $39.80 and the 52-week range is $30.78 to $47.34.  Enterprise noted that the proceeds will be used for general partnership purposes, including funding growth capital projects and that the sale should close in January 2012.

Enterprise Products Partners L.P. is already massive with a $39 billion market capitalization, while Energy Transfer Equity has a market value of about $8.9 billion.  Enterprise units trade at $45.52 and the consensus analyst price target objective from Thomson Reuters is $49.11.  Energy Transfer Equity trades at $39.80 and the consensus price target objective.

This matters for “dividend investors” even though these MLP payouts are referred to as distributions of both income and a return of capital component.  We just recently gave an MLP sector outlook for 2012 for the 24/7 Wall St. 2012 Model Dividend Portfolio.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) and ALPS Alerian MLP ETF (NYSE: AMLP) both include these and many other key ETFs, and Kayne Anderson MLP Investment Company (NYSE: KYN) lists both of these MLPs in the top ten holdings with Enterprise representing 9.1% and Energy Transfer representing 4.2%.

What Enterprise did not say is that the proceeds are likely to allow the MLP to keep boosting payouts ahead.  It is quarter after quarter that these MLPs keep hiking their quarterly payouts, and that is true for Enterprise as well.

JON C. OGG

We overlaid some of the recent Fitch Ratings analysis after the individual MLPs.  The aim is to show how the MLPs are valued at today as well as how they compare to their Thomson Reuters consensus price target objective and 52-week trading ranges.  The individual MLPs we are including on our own are as follows: Enterprise Products Partners L.P. (NYSE: EPD); Kinder Morgan Energy Partners LP (NYSE: KMP); MarkWest Energy Partners, L.P. (NYSE: MWE); Plains All American Pipeline, L.P. (NYSE: PAA); Williams Partners L.P. (NYSE: WPZ); Magellan Midstream Partners, L.P. (NYSE: MMP); Buckeye Partners, L.P. (NYSE: BPL); and El Paso Pipeline Partners, L.P. (NYSE: EPB).

As the end of 2012 approaches rapidly, we wanted to take a year-end look into the sector to see where there is opportunity versus risk.  We have shown the basic fundamentals of some of our top go-to names in the MLP sector and have shown a chart of the key ETF in this sector.  A report from Fitch Ratings earlier this month called MLPs fairly well positioned against economic regulatory risks and has noted that the sector should generate stable operating performance and financial credit measures for 2012.  The belief was that these should remain consistent with recent past performance and the outlook includes natural gas pipelines as well as crude oil and refined products pipelines. 

Income and dividend investors have become more aggressively interested in MLPs after a couple of years of Treasury rates and CD rates not paying anything of substance any more for income.  Retirees need cash flow from their investments in order to live.  Even though these distributions paid to investors act as dividends, there is usually a mixed combination of income and a return of capital.  In short, not all of the distributions paid out are treated the same by the tax-man.

Our individual valuation analysis on some of the key individual MLPs is as follows:

Enterprise Products Partners L.P. (NYSE: EPD) is valued at $39.2 billion now and trades at $45.00, under its consensus target of $49.11 and it has a 52-week range of $36.00 to $46.70.  The implied distribution per year based on the last payout was about 5.5%.

Kinder Morgan Energy Partners LP (NYSE: KMP) is valued at $26.9 billion and trades at $81.00, above its consensus target of $76.11 and against a prior 52-week range of $63.42 to $80.52.  The implied distribution per year based on the last payout was 5.8%.

MarkWest Energy Partners, L.P. (NYSE: MWE) is valued at $4.6 billion.  This unit trades at $54.20, and is under the consensus target of $61.88 and it has a 52-week range of $39.00 to $56.82.  The implied distribution per year based on the last payout was 5.4%.

We have overlaid some of the Fitch Ratings analysis after the individual MLPs because we wanted to show you what the MLPs are valued at today as well as how they compare to their Thomson Reuters consensus price target objective and 52-week trading ranges.  The individual MLPs we are including on our own are as follows: Enterprise Products Partners L.P. (NYSE: EPD); Kinder Morgan Energy Partners LP (NYSE: KMP); MarkWest Energy Partners, L.P. (NYSE: MWE); Plains All American Pipeline, L.P. (NYSE: PAA); Williams Partners L.P. (NYSE: WPZ); Magellan Midstream Partners, L.P. (NYSE: MMP); Buckeye Partners, L.P. (NYSE: BPL); and El Paso Pipeline Partners, L.P. (NYSE: EPB). 

Our individual valuation analysis on some of the key individual MLPs is as follows:

Enterprise Products Partners L.P. (NYSE: EPD) is valued at $40 billion now and trades at $46.10, under its consensus target of $49.11 and it has a 52-week range of $36.00 to $46.70.  The implied distribution per year based on the last payout was about 5.3%.

Kinder Morgan Energy Partners LP (NYSE: KMP) is valued at $26.1 billion and trades at $78.50, above its consensus target of $76.11 and against a 52-week range of $63.42 to $79.34.  The implied distribution per year based on the last payout was 5.9%.

MarkWest Energy Partners, L.P. (NYSE: MWE) is valued at $4.7 billion.  This unit trades at $55.80, and is under the consensus target of $58.38 and it has a 52-week range of $39.00 to $56.40.  The implied distribution per year based on the last payout was 5.3%.

Plains All American Pipeline, L.P. (NYSE: PAA) is valued at $10 billion, and its $67.30 price compares against a price target of $71.96 and its 52-week trading range is $54.90 to $67.74.  The implied distribution per year based on the last payout was 5.9%.

Williams Partners L.P. (NYSE: WPZ) is worth some $17.3 billion and its $59.65 price compares to a target of $60.81 and a 52-week range of $44.81 to $61.22.  The implied distribution per year based on the last payout was about 5%.

Magellan Midstream Partners, L.P. (NYSE: MMP) is worth $7.35 billion and its $6.30 price is just under the $66.64 consensus price target.  Its 52-week range is $51.00 to $65.92. The implied distribution per year based on the last payout was only about 4.9%.

Buckeye Partners, L.P. (NYSE: BPL) is valued at $5.95 billion and its $63.98 price is pretty far under the consensus price target of $70.25.  It has a 52-week range of $54.51 to $68.92. The implied distribution per year based on the last payout was 6.5%.

El Paso Pipeline Partners, L.P. (NYSE: EPB) is valued at $6.7 billion with a $32.60 share price.  That is one of the largest discounts to the consensus price targets of peers as its target is $39.00.  Its 52-week range is $31.34 to $38.36. The implied distribution per year based on the last payout was 6.1% based on today’s price.

Because many of the largest MLPs are so close to or above the consensus price targets, we recently gave the 24/7 Wall St. Model Dividend Portfolio some changes to focus more on the funds and ETFs (with payout rates based upon the average of the last two payouts): Kayne Anderson MLP Investment Company (NYSE: KYN) with a distribution of about 6.9%; JPMorgan Alerian MLP Index ETN (NYSE: AMJ) with a distribution of about 5.2%; and ALPS Alerian MLP ETF (NYSE: AMLP) with a distribution of about 6.3%.

The “units” have been extremely popular with income-oriented investors as investors look for high cash flow back into their accounts and while still looking for upside participation from the markets.  This morning came a report from Zacks naming Enterprise as the “Bull of the Day” when it raised its rating to Outperform from Neutral. More important than the Zacks upgrade is that it has a $54.00 price target objective and that appears to be a “street high” target.

As far as how this compares to analyst calls elsewhere: BofA/Merrill Lynch has a “Buy” rating with a $50.00 target, Morningstar has a “Hold” rating, and S&P has a “Buy” rating.  Thomson Reuters has a $48.40 consensus price target, almost 10% above the $44.13 close on Wednesday.

Here are ten things we have considered…

Chesapeake Energy Corporation (NYSE: CHK) recently announced that it reached an agreement to supply Enterprise with ethane for its proposed pipeline that connects the Marcellus Shale with the Gulf Coast.

The integration of Duncan Energy Partners LP should be beneficial for the partnership and unit holders.  The partnership with Enbridge Energy Partners LP (NYSE: EEP) and Anadarko Petroleum Corporation (NYSE: APC) for building a pipeline called the Texas Express should address transport constraints in place today on the Gulf Coast NGL market.

It is a heavy-weight in the sector with its $37 billion market cap.  The JPMorgan Alerian MLP Index ETN (NYSE: AMJ) lists that Enterprise is the largest single holding in its underlying index with a weighting of almost 15.8%. Kayne Anderson MLP Investment Company (NYSE:KYN), a closed-end MLP fund, also has Enterprise as its highest weighting at 9.4% in its latest report.

Besides being a leader above many peers, its projects tend to generate stable cash flow and they tend to add to the value in the company’s existing portfolio.

The company’s opportunity in the Eagle Ford and Haynesville Acadian Expansion should be great long-term catalysts.  Here is its existing pipeline and facilities system-wide map.

The company increased its quarterly distribution for the umpteenth time in a row and its dividend equivalent is currently over 5.5%. 

Distributable cash flow was $856 million with a coverage ratio of 1.7, and the $341 million in retained cash flow has seemingly lowered its financing needs.

The most recent earnings report was a record for the third quarter in part due to growth in the shale regions and high demand for NGLs in the petrochemical sector.  Earnings per unit were $0.55 (above a $0.50 target from Zacks) and up over 200% from a year earlier.
Revenues was up 40% from a year earlier.

Operating income in the NGL pipeline & services unit was up over 37% and gross operating income in its nat-gas processing segment rose 55%.  Its gross operating income from onshore crude pipelines and services were up over 90% from a year earlier.

The area of contraction was the Offshore Pipelines & Services on the gross operating income, which came down to $53.9 million versus $68.3 million a year earlier, on what was called lower Gulf of Mexico exploration and development on federal regulations.

There are many other things to consider for Enterprise (and other MLPs) for longer term income-oriented investors.  Investors in MLPs in general have to consider the tax ramifications as many quarterly payouts have to be considered “yield equivalent” rather than true income because a large portion of the payouts in the MLP sector are treated as return of capital with a variable portion often treated as income.  Barron’s noted it in the “Top MLPs for Investors” but we would note that Seeking Alpha recently raised a flag of caution on the group and on Enterprise itself.  We like to feature both good and bad when possible.

JON C. OGG

It also highlights outfits like Williams Companies, Inc. (NYSE: WMB) and other hard asset outfits which many may consider to be under the universe of partnerships or MLPs.  Some of the entities which investors may focus on in MLPs ar Plains All American Pipeline, L.P. (NYSE: PAA), Magellan Midstream Partners LP (NYSE: MMP), and Buckeye Partners LP (NYSE: BPL).

Plains All American Pipeline, L.P. (NYSE: PAA) is worth some $9.2 billion now and at $61.75 it has a 52-week range of $54.90 to $65.96.  Plains All American is in many aspects of transporting and storage, but one stat at the end of 2010 was that it had some 16,000 miles of active crude oil and refined products pipelines, as well as a fleet of trucks, trailers, and tugs various aspects of oil and natural gas.

Magellan Midstream Partners LP (NYSE: MMP) is worth some $7 billion and at $62.37 its 52-week range is $51.00 to $63.14.  Magellan has more than this, but as of the first quarter it operated roughly 9,600 miles of petroleum products pipeline system, 51 terminals, 6 marine petroleum terminals, 1 crude oil storage, 27 petroleum products inland terminals, and a 1,100-mile ammonia pipeline system and 6 associated terminals.

Buckeye Partners LP (NYSE: BPL) is now worth almost $6.1 billion and at $65.45 its 52-week range is $54.51 to $71.67.  Buckeye owns and operates approximately 5,400 miles of pipeline systems and has more than 60 liquid petroleum products terminals on last look. Another segment operates approximately 2,700 miles of third-party pipeline and terminals.

The merger also highlights the ETF (actually an ETN) of JPMorgan Alerian MLP Index ETN (NYSE: AMJ) and the closed-end fund of Kayne Anderson MLP Investment Company (NYSE: KYN).

So, as far as this concerns Williams Companies, Inc. (NYSE: WMB), the company is worth $16.5 billion.  At $28.05, its 52-week range is $20.20 to $33.47.  Williams has an exploration and production outfit like El Paso and it also has midstream assets and gas pipelines, although the company’s site notes that its MLP of by Williams Partners L.P. (NYSE: WPZ) owns and operates most of the company’s interstate gas pipeline assets.  Williams owns approximately 75 percent of Williams Partners, including the controlling general partner interest.  Its  pipelines deliver approximately 14% of the natural gas consumed in the United States.

Williams Companies has earnings estimates of $1.51 EPS for 2011 and $1.78 EPS for 2012, so its $28.05 share price generates a blended forward earnings multiple of about 17-times earnings.  The company has a 2.9% dividend yield and it trades at more than 2-times book value.  As far as how that compares to El Paso Corporation, El Paso’s blended estimates at the current price generates a forward multiple of close to 21-times earnings and more than 4-times its stated book value.

Not all pipeline assets will be acquired.  The value is just too high on a nominal basis for every deal that makes sense on the surface to make sense in raw dollars.  Some players also have provisions which might make a change of control less attractive for a buyer and these are just some of the other companies to consider in the sector.

JON C. OGG

In the actual MLPs, we are focusing on the larger entities with longer track records: Enterprise Products Partners LP (NYSE: EPD), Kinder Morgan Energy Partners LP (NYSE: KMP), Magellan Midstream Partners LP (NYSE: MMP), and Plains All American Pipeline LP (NYSE: PAA). In the closed-end funds, we look at the Kayne Anderson MLP Investment Company (NYSE: KYN) and The Cushing MLP Total Return Fund (NYSE: SRV).

In the world of ETFs, or ETNs, we will review the following: JPMorgan  Alerian MLP Index ETN (NYSE: AMJ), ALPS Alerian MLP ETF (NYSE: AMLP), Credit Suisse Cushing 30 MLP Index ETN (NYSE: MLPN), and the Morgan Stanley Cushing MLP High Income ETN (NYSE: MLPY).  Then there is the leveraged move in an ETN via UBS E-TRACS 2x Long Alerian MLP Infrastructure ETN (NYSE: MLPL), which trades as 200% of the underlying move.

News out of the National Association of Publicly Traded Partnerships that the Ways and Means Chairman Dave Camp (R-MI) would not be inclined to consider taxing pass-throughs is helping to bolster the MLP sector.  The concerns stemmed from reports of a Treasury proposal to tax pass-through entities with income over a certain amount.  The NAPTP has said this is a non-starter in the House of Representatives.

There may still be some concerns, or at least some challenge.  Finance Committee Chairman Max Baucus (D-MT) has apparently been quoted as saying that maybe pass-throughs need to be looked at and possibly be treated as corporations if income is over certain hurdles.  The counter to this concern is that the NAPTP said in direct conversation between Baucus and representatives that he was not concerned about pipeline PTPs. The NAPTP belives that Camp’s statement kills the taxation issue.

A separate research note from Bank of America Merrill Lynch maintains the viewpoint that “a change in Energy MLP tax status is unlikely and we consider this week’s sell-off as overdone.”  BofA also believes that much of the weakness is more tied into the sudden drop in commodity prices as seen with Thursday’s massive drop in oil prices.

The wild card issue we have today is that it is not known which, if any, nor when, pass-through entities will appear in future Treasury tax reform studies. We do believe that there is also a correlation to commodity prices as far as an “energy bias” is concerned but the reality is that most of these operations are not dependent upon oil and gas prices except when it comes to extremes that change business models and ultimately which change oil and gas demand.

Our screen brought up the names ALPS Alerian MLP ETF (NYSE: AMLP), Credit Suisse Cushing 30 MLP Index ETN (NYSE: MLPN), The Cushing MLP Total Return Fund (NYSE: SRV), JPMorgan Alerian MLP Index ETN (NYSE: AMJ), Kayne Anderson MLP Investment Company (NYSE: KYN), and Tortoise MLP Fund, Inc. (NYSE: NTG).

Be advised that most investors consider these payouts as dividends rather than the equivalent return of capital (non-taxed with depreciation considerations) that these are generally taxed as.  Investors also need to more closely discuss the taxation of these with their tax professionals before just buying these instruments because the taxation is generally much different.  Investors also need to be aware that the underlying operations that make these products up often have secondary offerings to support growth and their dividend payouts often fluctuate similar to that of REITs due to fluctuations in their earnings.

ALPS Alerian MLP ETF (NYSE: AMLP) paid $0.243 last quarter, which would come to roughly 6% in yield based on a $15.95 share price if the payouts were to remain static.  The 52-week trading range is $15.01 to $16.61.

Credit Suisse Cushing 30 MLP Index ETN (NYSE: MLPN) paid out $0.295 last quarter, which would come to roughly 4.9% in yield based on a $24.00 share price if the payouts were to remain static.  The 52-week trading range is $17.41 to $26.08.

The Cushing MLP Total Return Fund (NYSE: SRV) paid out $0.225 last quarter, which would come to roughly 8.7% in yield based on a $10.30 share price if the payouts were to remain static. The 52-week trading range is $7.53 to $11.14.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) paid out $0.444 last quarter, which would come to roughly 4.8% in yield based on a $36.35 share price if the payouts were to remain static. The 52-week trading range is $26.45 to $38.55.

Kayne Anderson MLP Investment Company (NYSE: KYN) paid out $0.485 last quarter, which would come to roughly 6.4% in yield based on a $30.35 share price if the payouts were to remain static. The 52-week trading range is $23.50 to $31.96.

Tortoise MLP Fund, Inc. (NYSE: NTG) paid out $0.4075 per share. This represents an annualized yield of 6.4 percent on the $25.35 share price if the payouts were to remain static. The 52-week trading range is $23.44 to $25.65.

There are some additional risks here in MLPs which are not necessarily the same as other more diversified oil and gas operators.  Rising oil prices are not uniformly good for the operations automatically.  These often have business models that are more similar to transportation or utility providers rather than the boom and bust for exploration and production operations.  There is no such thing as a free lunch in the world of dividends (or return of capital).  As always, know what you are investing in.

To tune into our Daily Dividend each day at 11:00 AM EST please set your RSS readers and bookmarks to our Dividend category tab on our website.

JON C. OGG

As had been noted before the offering, all shares in the IPO are being sold by the existing investors.  The selling shareholders include affiliates of Goldman Sachs Group, Inc. (NYSE: GS), Highstar Capital LP, The Carlyle Group, and Riverstone Holdings LLC.  The good news is that none of the shares being sold are coming from Kinder Management, and that includes CEO Richard Kinder.

We are still considering the halo-effect for shares of Kinder Morgan Energy Partners LP (NYSE: KMP) and Kinder Morgan Management LLC (NYSE: KMR).  Kinder Morgan Energy Partners LP (NYSE: KMP) has not seen any gains this week as the oil market has not been a bullish one. Its units closed at $71.67 on Thursday and the 52-week trading range is $57.40 to $73.08.  Kinder Morgan Management LLC (NYSE: KMR) is closer to its week highs and at $64.83 its 52-week trading range is $50.67 to $67.56.  These two existing Kinder Morgan entities account for more than 14% of the weighting in the JPMorgan Alerian MLP Index Exchange Traded Notes (NYSE: AMJ).  Fiduciary/Claymore MLP Opportunity Fund (NYSE: FMO) has a 7.9% weighting and Kayne Anderson MLP Investment Company (NYSE: KYN) has a 6.6% weighting in the Kinder Morgan Management LLC (NYSE: KMR).  Kinder Morgan Energy Partners LP (NYSE: KMP) has roughly a 9.35% weighting in the ALPS Alerian MLP ETF (NYSE: AMLP).

Goldman Sachs and Barclays Capital are the joint book-running managers.  The deal’s co-managers are BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, Wells Fargo, Madison Williams, Morgan Keegan, Raymond James, RBC Capital Markets, and Simmons & Company International.  The selling stockholders will grant the underwriters a 30-day option to purchase up to 14,319,990 additional shares of common stock to cover overallotments.

The most recent terms before the pricing had been for an IPO of 80 million shares with a price range of $26.00 to $29.00.  Just yesterday, our information from the night before had led us to believe that the IPO was likely to be closer to 90 million shares from the selling holders at the top of the trading range.  This premium pricing was that and then some at more than 95 million shares at a price of $30.00 per share.  Here is the funny thing about this IPO.  Despite our own digging for a higher price, there is still a feeling that some money was left on the table.  Management could have sold shares if it chose, particularly with such strong investor demand.

UPDATE at 3:40 PM EST: Shares were up at $31.17 on more than 47.5 million shares; the day’s trading range was $30.83 to $32.84.

You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

End note…. If you want to know why the Kinder Morgan interest is so strong and why the demand for anything tied to Richard Kinder is so strong, here is a chart as of last week that shows the long-term performance of Kinder Morgan Energy Partners LP (NYSE: KMP) and Kinder Morgan Management LLC (NYSE: KMR).  The chart should speak for itself:

Morningstar’s Paul Larson gave several sector picks today in the MLP sector, most of which are true MLPs.  Larson outlined Energy Transfer Equity, L.P. (NYSE: ETE).  It owns the general partner of two other MLPs, Energy Transfer Partners (NYSE: ETP) and Regency Energy Partners (NASDAQ: RGNC) in natural gas transportation businesses and ETP also owns a propane distribution business.

Enterprise GP Holdings L.P. (NYSE: EPE) was also given a positive outlook from Larson, and this is involved in a stock merger with Enterprise Products Partners L.P. (NYSE: EPD) that is still a deal pending unitholder approval.

Larson also likes TransCanada Corp. (NYSE: TRP), although this is a pipeline company in Canada that is not structured as a MLP and its dividend yield of 4.1% is more straightforward without many of the traditional tax headaches associated with an MLP.  Larson called it undervalued with a fair value estimate of $43.00 versus $37+ today.  Another of his alternative picks is Kinder Morgan Management LLC (NYSE: KMR) as being basically a different share class of one of the largest MLPs, Kinder Morgan Energy Partners.  Full Larson/Morningstar presentation

There are a couple of other means of investing in MLPs in a diversified manner that other pickers rarely make note of.  Kayne Anderson MLP Investment Company (NYSE: KYN) and JPMorgan Alerian MLP Index ETN (NYSE: AMJ) offer diversification with a return of capital component that still replicates income for investors.

Kayne Anderson MLP Investment Company (NYSE: KYN) is a closed-end equity mutual fund launched and managed by KA Fund Advisors, LLC that invests in the public MLP sector.  Its dividend can fluctuate and a recently announced payout of $0.48 per share for the last quarter is anticipated that a significant portion of the distribution will be treated as a return of capital for tax purposes.  That $0.48 rate has been paid for seven quarters (down from $0.50 before) and it has sold more shares and the current implied yield (again, not exact because return of capital) and its $26.10 share price compares to a 52-week trading range of $20.03 to $27.54.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) is an exchange-traded note that has a spotty dividend history since its 2009 launch.  If you smooth out the dividend it would have an implied yield of close to 5.2%.  At $33.95, the 52-week trading range is $24.26 to $34.15.

Before you chase these yields just as routine dividends, you will need to learn the tax structure, as well as the limitations and implications in investing in this asset class.

JON C. OGG

Abercrombie & Fitch (NYSE: ANF) Raised to Outperform at BMO Capital.
DG FastChannel, Inc. (NASDAQ: DGIT) Maintained Outperform but target cut to $41 at Oppenheimer.
Gap Inc. (NYSE: GPS) Raised to Outperform at Wells Fargo.
Green Plains Renewable Energy (NASDAQ: GPRE) Cut to Neutral at Piper Jaffray.
Kayne Anderson MLP Investment Co. (NYSE: KYN) Raised to Buy at Wunderlich.
Rackspace Hosting, Inc. (NYSE: RAX) Cut to Hold at Benchmark.
Rio Tinto plc (NYSE: RTP) Raised to Buy at BofA/Merrill Lynch.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG