4 Big Dividend Energy MLPs to Buy Rated Investment Grade
With a very difficult energy situation, and OPEC vowing to raise its production ceiling per day, the bad news for investors seems to never stop. One recent positive was a weakening of the dollar, which tends to help oil prices. Unfortunately, many on Wall Street see continued dollar strength in 2016 and more pressure. One good way to evaluate the current status of some of the top energy master limited partnerships (MLPs) is how they are rated by Standard and Poor’s.
A new Deutsche Bank report includes a list of investment grade rated MLPs and midstream companies. We screened the list for those with a current rating of at least BBB and a stable outlook. We found four that look very good.
Enterprise Products Partners
This company is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, just raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason why many analysts may have a liking for the stock might be its distribution coverage ratio, which is well above one times, making it relatively less risky in the MLP sector. The company’s distributions have grown for several quarters and are expected to continue in 2016. The current rating is BBB+ and the outlook is stable.
Enterprise investors receive a very solid 6.72% distribution. Thomson/First Call consensus price target for the stock is a huge $34.55. Shares closed Friday at $22.93.
Magellan Midstream Partners
This top midstream company checks in high on the ratings list. Magellan Midstream Partners L.P. (NYSE: MMP) primarily transports, stores and distributes refined petroleum products and crude oil. The partnership owns the longest refined petroleum products pipeline system in the country, with access to nearly 50% of the nation’s refining capacity, and can store more than 95 million barrels of petroleum products, such as gasoline, diesel fuel and crude oil.
The company sports a BBB+ credit rating from S&P, and the outlook is listed as stable. One main reason for the very positive ratings is that almost 85% of Magellan Midstream’s operating margin is protected by long-term, fixed-fee contracts, meaning that its cash flow is not just recurring and highly predictable, but also largely immune from energy prices. This helps to keep the distribution safer.
Magellan investors are paid a 5.06% distribution. The consensus price target is $80.46. Shares closed Friday at $60.24.