Saudi Arabia is barging ahead with a reckless plan to try and curb American oil production by dropping the global price. But, the news is in and America is not stopping its quest for energy independence any time soon. Continued strong American production will bolster these three companies while they keep piping profits to their shareholders through big dividends.
The drop in the price of crude has negatively affected master limited partnerships (MLP) values almost across the board. The decline in MLP prices has driven some very high quality partnerships to what I view as a very attractive 5+10 investment potential. By this I mean a 5% current yield combined with 10% annual distribution growth. That is a combination which will make any income focused investor very happy over a multi-year holding period. Before I give my list of three high quality MLPs to pick up now, a little discussion on the somewhat secret energy war.
The cause of the recent drop in the price of WTI crude oil from the mid $90’s to below $80 can be laid at the doorstep of Saudi Arabia. Historically, the Saudis have been willing to curtail production to help prop up oil prices for all of the OPEC members. However, this time around it is the emergence of the U.S. as one of the top oil producers that has caused the Saudis to change their tactics. The belief is that Saudi Arabia has allowed the price of crude to decline to force U.S. energy companies to curtail their drilling efforts and reduce production.
Saudia Arabia has even offered its oil at discounted rates to U.S. buyers.
The U.S. energy companies know this is going on and have vowed to continue drilling and driving the U.S. closer to energy independence. In the more productive plays, energy exploration and production companies have stated that they can remain profitable down to as low as $40 per barrel. This is a war that the U.S. energy sector will win and Saudi Arabia needs to find different markets for its oil.
The midstream MLPs provide the services that the oil and gas drillers need to get their products from the wellhead to the end users. Energy production growth requires continued expansion of the midstream infrastructure. Midstream assets include gathering and processing facilities in the energy plays, oil and gas pipelines, other transportation assets, and storage facilities. The larger midstream MLPs have long term plans to continue their growth records, the financial strength to weather short term adversity, and established positions in the best energy plays and at the major energy processing locations. As I noted above, the combination of a 5% yield plus an outlook for 10% distribution growth is a sweet spot to generate an attractive and growing income stream in this sector. Here are three MLPs that will power your portfolio as the energy sector works through the current energy price disruption.
Enable Midstream Partners LP (NYSE: ENBL) went public with an April 2014 IPO, but is already one of the largest midstream MLPs. Enable was spun off by two large natural gas public utility companies. It provides the full range of midstream services. With a $10 billion market cap, ENBL yields 5.02% and is forecast to grow its distribution by 11% per year.
EnLink Midstream Partners LP (NYSE: ENLK) is a $6.9 billion market cap MLP formed in early 2014 by the combining of the Crosstex Energy MLP and the Devon Energy (NYSE: DVN) midstream assets. EnLink has a four pronged approach to generate growth, allowing the company flexibility in the pursuit of its growth goals. ENLK currently yields 4.9% and management has stated a growth target of about 10%. This one is a sleeper with the potential to perform better than the forecast.
Plains All American Pipeline, LP (NYSE: PAA) primarily provides crude oil and refined products pipeline, rail transport, and storage services. Plains offers the combination of one of the best asset portfolios in the midstream sector and a very conservative management philosophy. The PAA distribution has grown by an 8.5% compound annual growth rate for the last 10 1/2 years, and has put up 10% growth over the last three years. The current 4.9% yield is well above the sub-4.5% average PAA has carried for the last year.
MLPs are an integral part of the income strategy with my newsletter, The Dividend Hunter. And there are currently several of them in my Monthly Paycheck Dividend Calendar.
The Monthly Dividend Paycheck Calendar is set up to make sure you’re getting 2, 3, even 5 dividend paychecks per month from stable, reliable stocks with high yields. And that you’re getting payments every month, not just once a quarter like some investors.
The Calendar tells you when you need to own the stock, when to expect your next payout, and how much you could make from stable, low risk stocks paying upwards of 8%, 10%, even 11%. I’ve done all the research and hard work, you just have to pick the stocks and how much you want to get paid.
The next critical date this month comes on Friday, November 7th, so you’ll want to take action today to make sure you don’t miss out. Click here to find out more about this unique, easy way of collecting monthly dividends.