Energy

Stifel Says Buy 4 Large-Cap MLPs That Pay Big Dividends

Lee Jackson

Published: March 19, 2019 8:30 am

Last Updated: January 30, 2020 11:18 pm

Oil has been somewhat range bound as we head into spring this week, but the good thing for most oil producers is that over the $50 a barrel level most are able to wring out a profit. The good news for investors is that the top energy master limited partnerships (MLPs) offer a safer way to play the sector, and they also pay out some sizable distributions.

A new research note from Stifel points out that fourth-quarter results for the companies in its MLP research universe exceeded expectations, and with oil finally edging back toward the $60 level, the firm feels that while it should be supportive of the upstream producer and volumes, investors continue to push the industry toward free cash flow.

The firm remains bullish on four large-cap MLPs, two of which are on the Stifel Select List. All make sense for growth and income accounts looking for dependable distributions.

Enterprise Products Partners

This 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) is the largest publicly traded master limited partnership providing a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.

One reason many analysts may have a liking for the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it relatively less risky among the MLPs. The company’s distributions have grown consistently over the years, and earlier this year, Enterprise Products Partners announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.435 per common unit, or $1.74 per unit on an annualized basis.

Investors are paid a very solid 6.19% distribution. The Stifel price target for the stock is $32, and the Wall Street consensus target price was last seen at $33.41. The stock ended Monday’s trading at $28.82 a share.

Energy Transfer

This top MLP is a very safe way for investors looking for energy exposure, and it is on the Stifel Select List. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.

The company is a publicly traded limited partnership with core operations that include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (NGLs) and refined product transportation and terminaling assets; NGL fractionation; and various acquisition and marketing assets.

Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG, as well as the general partner interests, the incentive distribution rights and 28.5 million common units of Sunoco, and the general partner interests and 39.7 million common units of USA Compression Partners.

Energy Transfer investors receive an outstanding 8.10% distribution. Stifel has a $20 price objective on the shares, which is lower than the consensus figure of $21.50. The stock closed most recently at $15.30 a share.

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Plains All American Pipeline

This remains a top MLP pick across Wall Street. Plains All American Pipeline L.P. (NYSE: PAA) is primarily engaged in midstream crude oil activities, including transportation, gathering, marketing and terminaling. Plains is expected to announce an updated financial strategy, likely before the first-quarter results are released and management has been foreshadowing a distribution increase.

Top analysts, including the Stifel team, feel the company deserves a premium valuation, given its leverage to the Permian and attractive organic growth backlog. The company reported strong fourth-quarter results with earnings guidance in line with Wall Street expectations.

Investors receive a solid 4.94% distribution. The $26 Stifel price objective for this one is less than the $27.64 consensus target. Shares were last seen trading at $24.79 apiece.

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Williams Companies

This top energy stock is also a solid pick for more conservative accounts looking for exposure to liquefied natural gas (LNG). Williams Companies Inc. (NYSE: WMB) is now largely a pure-play domestic natural gas infrastructure company that has a 74% ownership interest in its underlying master limited partnership, Williams Partners.

The company has a lower risk, fee-based business model with some volume sensitivity. Natural gas demand continues to be driven by LNG exports, power generation and industrials. In addition to steady demand growth, Marcellus production and associated gas in the Permian are expected to continue to be primary supply drivers.

Williams handles 30% of U.S. natural gas production through its long-haul pipeline network and gathering and processing footprint. Transcontinental Pipeline (Transco), which stretches from New York to South Texas, currently serves four of the six operating/under construction LNG exports facilities with 2 billion cubic feet per day of contracted capacity. Management believes Transco is well positioned to serve the second wave of projects, given its Gulf Coast connectivity and optionality

Williams Companies shareholders are paid a very sizable 5.52% dividend. Stifel has set its price target at $30. The posted consensus target is $31.94, and the shares closed most recently at $27.79.

These four top companies offer safe and reliable distributions, plus they are major players in the energy infrastructure arena. Investors looking for solid total return potential can do well owning these large-cap MLP leaders.