Energy Business

5 Long-Term Opportunities Forming in MLPs

Jon C. Ogg

Plains All American Pipeline

Plains All American Pipeline L.P. (NYSE: PAA) has seen its units brutalized in the MLP sell-off, falling to $39.50, against a 52-week range of $38.56 to $61.09. It just recently hiked its quarterly cash distributions, the 43rd of the past 45 quarters to do so. The MLP also has a 6.9% yield-equivalent in its distribution.

Plains All American has a $15.7 billion market cap, and the current price of $39.50 compares to a 200-day moving average of $44.88. Its consensus price target is $56.30, representing implied upside of 42%, without considering the distribution.

Kayne Anderson MLP Investment

Kayne Anderson MLP Investment Co. (NYSE: KYN) is not an MLP itself, but it is a closed-end mutual fund that invests in and tracks MLPs. Like most MLP funds, it holds Kinder Morgan aggressively. Due to its price performance being in the tank with close to a $27.00 share price, the yield equivalent is now up to 8.2%.

The $27.00 share price is against a 52-week range of $26.82 to $41.35. Investors need to understand that there is some leverage in this closed-end fund, and that means that gains on the upside and price drops on the downside are magnified. That is why the year-to-date performance is almost -25%.

Alerian MLP ETF

The Alerian MLP ETF (NYSEMKT: AMLP) has suffered along with the MLPs as well, but this is the most liquid of the exchange traded funds that track the MLPs, and the dividend yield is supposed to be a bit more straightforward as well. That being said, the currently indicated yield of almost 7.5% fluctuates more than traditional MLPs due to the timing of payouts.

Trading at $14.98, the Alerian MLP has a 52-week range of $14.87 to $19.35. This fund is down almost 15% year to date.

ALSO READ: Why Exxon Made the Goldman Sachs Conviction Buy List

24/7 Wall St. has chosen to focus on those entities that can either hold their dividends and distributions steady or those that have demonstrated over and over (and said over and over) that they still expect to be able raise their payouts in the quarters or years ahead.

An additional risk has again been some future tax concerns. While the National Association of Publicly Traded Partnerships has diminished this risk in general, it did voice some concerns that may be an additional source of investor concern.

Trying to catch a falling knife can be very painful. The idea here is not to call a bottom as much as it is to highlight how much these have come down and how much they could rise if the current analyst expectations were to pan out. Looking for long-term value requires far more patience than the next few trading days.