The world of master limited partnerships (MLPs) has suffered handily along with the plunge in oil prices. What is interesting is that there seems to be a flush-out happening here, and it may be more driven by a very cautious or negative energy sector sentiment than it is based on underlying fundamentals.
Many of these MLPs have performed worse in 2015 than some of the actual oil-producing giants. The underlying thought during the run up of oil and the subsequent run down in oil was that the best-run MLPs were supposed to have at least a bit less commodity price sensitivity than the companies that produce oil.
MLPs have several issues to contend with at this time. On top of weak oil prices, there is a consolidation phase in which larger and better run MLPs are looking at gobbling up some of the weaker companies due to current industry woes. Then there is the access to the capital markets being less available, and of course the potential rise in interest rates has some investors wondering if they should be less focused on income. Another issue is that all the prior issues might make it harder to keep up those ever-growing distributions.
24/7 Wall St. always enjoys looking for long-term value opportunities. Still, there could be additional weakness ahead. No investor or trader should consider MLPS, or any other asset class, being at a bottom or as being a quick-hit opportunity to pile in all at once just because of aggressive sell-offs. Imagine what might happen if the stock market were to roll over on top of the weakness seen here already. Or imagine what happens if the price of oil starts to consider $40 oil per barrel again.
24/7 Wall St. has featured two pure-play MLPs, one former MLP that turned back into a corporation, one MLP closed-end fund and one MLP exchange traded fund.
Enterprise Products Partners
Enterprise Products Partners L.P. (NYSE: EPD) is the current king of former MLP structures. It has been rolling up entities into its mix, but the deals has have so far been bolt-on rather than transformative or heavily leveraged. Enterprise has a distribution yield-equivalent of 5.3%.
The shares are trading right at about $27.75, down about 33% from the 52-week high. Its 200-day moving average now is above $31. Its 52-week high is $41.38, it has a market cap of $55 billion and its consensus price target is $39.83. This implies 43% upside if the analysts are correct.
Kinder Morgan Inc. (NYSE: KMI) has slid with the MLP sector, and it recently raised its dividend yet again. Due to its consolidation back into a corporation rather than the corporation and an MLP structure, it is a real dividend for investors. Whether Kinder Morgan will be able to grow that dividend by 10% for each of the next five years remains to be seen and is partly dependent on the underlying price. Its yield is now 5.1%.
Kinder Morgan is trading right at $35.05, down over 20% from its 52-week high. The 200-day moving average is just above $40 now. With a 52-week range of $33.25 to $44.71, and a market cap of $75 billion, Kinder Morgan has a consensus price target of $46.82. If analysts are correct, there is an implied upside opportunity of 34%, without considering that yield.