The good thing about the length of the energy downturn is that it flushed out the poor companies and gave the good ones the opportunity to lower capital expenditures, cut distributions or both to aid struggling balance sheets. With the depth and length of the downturn factored in, it has become easier to see who survives and what the status of each company is now.
In a historically low and ongoing low interest rate environment, income investors have been penalized, and in many cases they have had to reach for yield. Many turned to energy master limited partnerships (MLPs) for income and stability and got hammered. We found three in the Merrill Lynch research database that appear to have very safe distributions, and all are rated Buy.
Enterprise Products Partners
This is one of the largest publicly traded MLPs and a leading North American provider of midstream energy services to producers and consumers. Despite the energy slump, Enterprise Products Partners L.P. (NYSE: EPD) recently raised the distribution 1%. Enterprise Products 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 like the stock is its distribution coverage ratio. That ratio is well above one times, making it relatively less risky among the MLPs. The company’s distributions have grown for several quarters, and recently Enterprise Products increased the quarterly cash distribution paid to partners to $0.395 per common unit, or $1.58 per unit on an annualized basis. This is the 56th distribution hike since Enterprise’s initial public offering in 1998. Also, this is the 47th time that the company has increased its quarterly payout. The distribution signifies a 5.3% increase over the distribution in the first quarter of 2015.
Enterprise investors receive a 6.07% distribution. Merrill Lynch recently raised its price target to $30 from $28. The Thomson/First Call consensus price target is $31.92. Shares closed Friday at $26.05.
This top company also has fought its way through the sector trouble. Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the industry in the Gulf Coast region of the United States. Its Onshore Pipeline Transportation segment transports crude oil and carbon dioxide (CO2). This segment owns four onshore crude oil pipeline systems with approximately 500 miles of pipe located primarily in Alabama, Florida, Louisiana, Mississippi, and Texas, as well as two CO2 pipelines with approximately 270 miles of pipe.
The company’s Offshore Pipeline Transportation segment transports crude oil and owns various offshore crude oil pipeline systems with approximately 1,200 miles of pipe located offshore in the Gulf of Mexico.
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