Oil prices down a hefty 15% in 8 weeks
While many can argue about using oil and natural gas versus so-called renewable sources, the internal combustion engine and gas-fired power plants are not going away. With Brent Crude and West Texas Intermediate trading 15% below highs posted in the late summer, many top companies in the sector have also moved lower.
MLPs have traded lower with oil
Many energy master limited partnerships (MLP) are midstream companies that control the movement or storage of oil and natural gas via contract pricing with the big oil producers. Most of these companies are not as affected by the oil price as exploration and production companies are, but they have also dropped in price over the last two months.
The top companies are paying dependable massive distributions
We screened our 24/7 Wall Street MLP research database, looking for leading companies that pay ultra-yield high distributions to their shareholders. Seven top companies hit our screen, including a recent initial public offering set to shareholders as an incredible distribution.
Alliance Resource Partners
This company is a leader in the thermal coal business, offers solid diversity, and a massive 13.04% yield. Alliance Resource Partners L.P. (NASDAQ: ARLP) is a natural resource company that produces and markets coal primarily to utilities and industrial users in the United States.
The company operates through four segments:
- Illinois Basin Coal Operations
- Appalachia Coal Operations
- Oil and Gas Royalties,
- Coal Royalties.
The company operates seven underground mining complexes in
- West Virginia
In addition, it leases land and operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana; and buys and resells coal, as well as owns mineral and royalty interests in approximately 1.5 million gross acres of oil and gas-producing regions primarily in the Permian, Anadarko, and Williston Basins.
The company also offers various mining technology products and services, including
- Data networks
- Communication and tracking systems
- Mining proximity detection systems
- Industrial collision avoidance systems
- Data and analytics software.
The top master limited partnership is a safe way for investors looking for energy exposure and income, as the company pays a massive 9.22% distribution. 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 of 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 (NGL), and refined product transportation and terminalling assets.
- NGL fractionation and various acquisition and marketing assets
Through its ownership of Energy Transfer Operating L.P., the company also owns Lake Charles LNG Company, as well as the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco L.P. (NYSE: SUN), and the public partner interests and 39.7 million standard units of USA Compression Partners L.P. (NYSE: USAC).
Enterprise Products Partners
This company is perhaps the most significant publicly traded energy partnership and pays a 7.62% dividend. Enterprise Products Partners L.P. (NYSE: EPD) provides various midstream energy services, including
- Gathering, processing, transporting, and storing natural gas, natural gas liquids (NGL) fractionation
- Import and export terminalling
- Offshore production platform services
The company has four reportable business segments:
- Natural Gas Pipelines and Services
- NGL Pipelines and Services
- Petrochemical Services
- Crude Oil Pipelines and Services
One of the reasons many analysts may like the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above 1x, making it relatively less risky in the MLP sector.
This is the limited partnership midstream arm of one of the country’s top energy companies and pays a stellar 7.55% dividend. Hess Midstream LP (NYSE: HESM) owns, develops, operates, and acquires midstream assets.
The company operates through three segments:
- Processing and Storage
- Terminaling and Export
The gathering segment owns natural gas gathering and crude oil gathering systems and produces water gathering and disposal facilities. Its gathering system consists of approximately 1,350 miles of high and low-pressure natural gas and natural gas liquids gathering pipelines with a capacity of roughly 450 million cubic feet per day, and the crude oil gathering system comprises about 550 miles of crude oil gathering pipelines.
The Processing and Storage segment comprises Tioga Gas Plant, a natural gas processing and fractionation plant in Tioga, North Dakota.
- 50% interest in the Little Missouri 4 gas processing plant located south of the Missouri River in McKenzie County, North Dakota.
- Mentor Storage Terminal is a propane storage cavern, rail, and truck loading and unloading facility in Mentor, Minnesota.
The Terminating and Export segment owns the Ramberg terminal facility,
- Tioga rail terminal
- Crude oil rail cars
- Johnson’s Corner Header System, a crude oil pipeline header system
Mach Natural Resources
This recent IPO is trading below the initial price and will pay a gigantic 16.33% dividend. Mach Natural Resources (NYSE: MNR) is an independent upstream oil and gas company focused on the acquisition, development, and production of oil, natural gas, and natural gas liquids reserves in the Anadarko Basin region of Western Oklahoma, Southern Kansas, and the panhandle of Texas.
The analysts at Raymond James noted that the company is led by Tom Ward, Co-Founder of Chesapeake Energy. Mach is another entrant into the exploration and production MLP space.
Mach Natural Resources is a pure-play operator in the Anadarko Basin, leveraging its strong position (1 million net acres) to become the primary consolidator in the region.
Mach’s midstream position and lower base decline (~20%) allow the company to target a lower reinvestment rate (~30%) relative to the overall industry.
This company is one of the top holdings in the Alerian MLP energy exchange-traded fund and pays a hefty 9.49% dividend. MPLX LP. (NYSE: MPLX) is primarily engaged in crude oil and refined products transportation and terminalling in the US Midwest and Gulf Coast regions and natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. Independent US refiner Marathon Petroleum Corporation (NYSE: MPC) formed MPLX.
The company’s assets include a network of crude oil and refined product pipelines:
- An inland marine business
- Light-product terminals
- Storage caverns
- Refinery tanks
- Loading racks and associated piping
- Crude and light-product marine terminals
MPLX also owns crude oil and natural gas gathering systems, pipelines, and natural gas and NGL processing and fractionation facilities in key U.S. supply basins.
USA Compression Partners
While perhaps less known than their peers, this top company pays shareholders a hefty 8.23% dividend. USA Compression Partners, Lp. (NYSE: USAC) provides natural gas compression services.
The company offers compression services to oil companies and independent producers, processors, gatherers, and transporters of natural gas and crude oil, as well as operating stations.
USA Compression Partners primarily provides natural gas compression services to infrastructure applications, including centralized natural gas gathering systems, processing facilities, and gas lift applications for crude oil wells.
Energy MLPs offer solid long-term prospects
Seven top companies that offer safe and reliable distributions are significant players in the energy infrastructure arena. Those looking for solid total return potential can do well owning these MLP leaders.
It’s important to note that MLP distributions may contain a return of principal. Those looking to avoid the pesky K-1s can always purchase shares in the ALPS Alerian MLP exchange-traded fund (NYSE: AMLP). Investors receive a 1099 instead of a K-1.
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