Energy Business

5 Contrarian Energy MLPs Under $10 With Massive Dividends and Potential Upside

It happened in 2008 and 2009, and despite a huge rally off the bottom, many companies that investors are very familiar with have taken a beating. Needless to say, the ones that have been beaten down the most are in sectors that are struggling the most. Energy continues to lag badly in 2020, but many are optimistic things will improve next year.

Not too many years ago, the energy master limited partnerships (MLPs) were red hot. Oil was trading much higher than today, and the top companies in the business were handing out big capital gains and paying big distributions to unitholders as well. It all ended as oil prices plunged and investors fled the sector.

We screened our 24/7 Wall St. research database looking for well-known companies in the energy MLP universe that are likely to survive the current troubles and could very well offer patient investors some huge total return over the next year or so. In addition, we made sure the distributions for the companies were still intact, and while all are rated Buy at top Wall Street firms, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

While MLP distributions screen as yield similar to traditional stocks, there are some tax ramifications on an individual issuer basis and these should be considered a yield-equivalent rather than a true dividend. The distributions are generally sourced partly from income, but they may also include gains, come from cash flow and may also be considered a return of capital that comes with certain tax advantages.

Enable Midstream

This company provides solid distributions with serious upside potential. Enable Midstream Partners L.P. (NYSE: ENBL) is primarily engaged in oil and natural gas services, including gathering, processing, transportation and storage. The company was formed to own the energy midstream assets of CenterPoint Energy and OGE Energy, which combined own Enable’s general partner.

Enable’s assets include approximately 13,900 miles of natural gas, crude oil, condensate and produced water gathering pipelines, approximately 2.6 billion cubic feet per day of natural gas processing capacity, approximately 7,800 miles of interstate natural gas pipelines (including Southeast Supply Header, of which Enable owns 50%), approximately 2,300 miles of intrastate natural gas pipelines and eight natural gas storage facilities comprising 84.5 billion cubic feet of storage capacity.

Investors receive a massive 13.43% distribution. Wolfe Research has an $8 price target, and the Wall Street consensus target is $5.56. The shares traded around the $5 level late last week.

Energy Transfer

This top MLP is a very safe play for investors looking for energy exposure and income. 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.

This publicly traded limited partnership has core operations that include complimentary 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.

Investors finally received the long-anticipated distribution cut in late October, which was a stunning 50%. However, investors still receive a stellar 11.51%. The Raymond James price objective is $9, and the consensus figure is $9.95. Energy Transfer has been trading north of $5 recently.

Genesis Energy

This one remains reasonably well received on Wall Street. Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the oil and gas industry in the Gulf Coast region of the United States. The company’s Offshore Pipeline Transportation segment engages in offshore crude oil and natural gas pipeline transportation and handling operations, as well as in the deepwater pipeline servicing in the southern Keathley Canyon area of the Gulf of Mexico.