Holly Energy Partners
This stock is looking to breakout from a summer sell-off. Holly Energy Partners L.P. (NYSE: HEP) owns and operates petroleum product and crude pipelines, storage tanks, distribution terminals and loading rack facilities.
The company’s pipeline assets include approximately 810 miles of refined product pipelines that transport gasoline, diesel and jet fuel from New Mexico to Texas, Arizona, Utah and northern Mexico; approximately 510 miles of refined product pipelines that transport refined products from Texas to Oklahoma; three 65-mile pipelines that transport intermediate feedstocks and crude oil from Lovington, New Mexico, to Artesia, New Mexico; and approximately 940 miles of crude oil trunk, gathering and connection pipelines located in West Texas, New Mexico and Oklahoma.
The company’s pipeline assets also consists of approximately eight miles of refined product pipelines that support Woods Cross refinery in near Salt Lake City, Utah; gasoline and diesel connecting pipelines located at Tulsa East refinery facility; five intermediate product and gas pipelines between Tulsa east and west refineries; and crude receiving assets located at Cheyenne refinery, as well as 427-mile refined products pipeline.
Holly Energy Partners is known across the sector for being conservative with both its payout and its debt levels. The company’s distribution coverage ratio, which is generally the most common metric for measuring a master limited partnership’s (MLP’s) dividend safety, was 1.67. In an industry where a coverage ratio of 1.2 or greater is outstanding, shareholders are in good shape going forward, as is the company.
Shareholders are paid a 7.13% distribution. The $38 Merrill Lynch price target is more or less in line with the consensus target of $38.17. Shares closed Wednesday at $32.82.
Starwood Property Trust
This top real estate company makes good sense for income investors now. Starwood Property Trust Inc. (NYSE: STWD) is an affiliate of global private investment firm Starwood Capital Group and is the largest commercial mortgage real estate investment trust (REIT) in the United States.
Its core business focuses on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt and equity investments. Through its subsidiaries LNR Property and Hatfield Philips International, Starwood Property Trust also operates as the largest commercial mortgage special servicer in the United States and one of the largest primary and special servicers in Europe.
The company reported solid second-quarter numbers and raised guidance back in August, while also increasing its stock buyback authorization as management views the stock as currently undervalued.
Starwood Property investors receive an 8.25% distribution. The Merrill Lynch price target is $24. The consensus target is posted at $23.72. Shares closed most recently at $23.30.
It’s important to remember that MLPs, REITs and limited partnerships can distribute income that is return of capital. With that in mind, all these companies rated Buy at Merrill Lynch make sense for accounts seeking higher income and that have a higher risk tolerance.
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