CHICAGO, Sept. 30, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Oneok Partners (NYSE: OKS), Plains All American Pipeline (NYSE: PAA), Buckeye Partners (NYSE: BPL), TC PipeLines (Nasdaq: TCLP) and Kinder Morgan Energy Partners (NYSE: KMP).
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Here are highlights from Thursday's Analyst Blog:
High-Energy Dividends from MLPs
If you want exposure to the energy sector but you are unsure about the impact of the global slowdown on crude oil demand and pricing, you may want to consider a Master Limited Partnership, or MLP.
The Oil & Gas Production Pipeline MLP industry group is holding up strong in the Zacks Industry Rank at #48 among 265 industries, along with Oil Refining and Marketing at #22 and Oilfield Services at #49. I talked about this cyclical strength yesterday.
What I neglected to mention is that even though many refiners and service companies are cheap and appear to still have earnings momentum, there could be further downward revisions to earnings estimates yet to come in this slowdown part of the cycle.
And thinking about this last night, it dawned on me that the MLPs are in some ways the perfect blended solution for energy investors. Many energy names have been clobbered as crude oil dropped $30 on fears of the potential recession. As a sector, the pain is visible in the SPDR Energy ETF (XLE), down 25% from its July peak is .
But the MLPs have weathered the storm. With 25 companies in this industry group, many paying dividends yielding near 6%, institutional money appears to be "parking" here because these stocks have suffered little or no losses in the summer swoon.
What's going on here? For further insight, I offer a look back at a colleague's research from early June. Todd Bunton wrote about "4 MLPs with Yields Above 5%" on June 7 and explained the business structure of these companies whose pipelines appear flush with cash.
I want to highlight both his excellent brief description of an MLP as well as his rationale for investing in the space. The section below is taken directly from Todd's article...
Unitholders, Not Shareholders
Master Limited Partnerships raise capital by issuing units, which act much like common shares. Investors buy units of the partnership and are referred to as "unitholders" rather than shareholders.
The MLP itself is not taxed as an entity as it passes through the bulk of its income to unitholders through "quarterly required distributions" (QRD). The unitholders are the only ones that pay taxes, unlike dividends which get taxed at both the corporate and individual level.
MLPs typically operate in low risk, slow-growth industries like oil and natural gas pipelines. Cash flow is usually strong and distributions stable over time.
These strong and stable distributions should provide limited downside risk in a weak market as yield-hungry investors move in and bid up the price.
Although not all MLPs are immune to bear markets and recessions, those with attractive (and sustainable) distribution yields should hold up quite well.
4 for 4 on the MLP Idea
How did Todd's investment idea hold up since June? Quite well. Below are the four companies with a look at each's 3-month price performance and their "Big D" info:
Oneok Partners (NYSE: OKS): Dividend - Yield $2.34 - 5.28%
Plains All American Pipeline (NYSE: PAA): Dividend - Yield $3.93 - 6.68%
Buckeye Partners (NYSE: BPL): Dividend - Yield $4.05 - 6.55%
TC PipeLines (Nasdaq: TCLP): Dividend - Yield $3.08 - 7.09%
Are you convinced yet that some "high energy" dividend payers from MLP land should find a place in your portfolio? If not, be sure to check out Todd's original article on these companies because he has excellent graphics of the distribution history of each these.
Hint: all their distributions have risen at quite a clip in the past ten years. Yes, they could slow down now. But it's definitely a strong and stable trend worth participating in with some capital.
And as coincidence would have it, guess what Todd is writing about today... the most well known of companies in the energy MLP zoo, Kinder Morgan Energy Partners (NYSE: KMP). Currently paying a 6.7% yield, KMP is his Growth & Income pick today with a Zacks #2 Rank (buy).
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