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High-yielding master limited partnerships (MLPs) are likely to head lower before forming a bottom, but patient income investors may soon find favorable long-term entry points.

Long-term annualized returns of the top master limited partnerships (MLPs) have been impressive, but the sharp slide in crude oil prices has hit them hard over the past six weeks. One of the most widely held is Enterprise Products Partners LP (EPD), which is down 12.6% from the early-May highs.

This is the good news for new buyers of MLPs since at the May price high of $52.94, EPD, which pays a dividend of $2.51, was yielding 4.7%. At Monday’s closing price of $46.23, it is now yielding 5.4%. For those who are already long, however, it has been a rough five weeks.

The weekly technical action seen in MLPs suggests they are likely to drop even further over the coming weeks. The long-term support for August crude oil in the $78.50-$80 area may be tested before a bottom is in place, and that is the bad news for the leading MLPs, which could lose another 3-6% before they finally bottom out. Such a decline is likely to present good long-term buying opportunities, however.

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Chart Analysis: Enterprise Products Partners LP (EPD) is a $40.8 billion, Houston-based MLP that traded as low as $38.01 at last October’s lows.

  • The 50% Fibonacci retracement support from the October lows is at $44.70, and the breakout level from last fall is now at $43.50, line a
  • More important 61.8% support is at $42.70
  • Weekly on-balance volume (OBV) dropped below its weighted moving average (WMA) on May 12, and the uptrend, line b, was broken last week
  • There is initial resistance in the $48.50-$50 area

Kinder Morgan Energy Partners LP (KMP) is a $25.8 billion MLP that pays a current dividend of $4.80. Considering Monday’s close at $76.23, the yield is 6.3%.

  • KMP traded as high as $90.60 in February and is currently down 15.8% from those highs
  • The long-term chart shows that former resistance (now support) at line c is being tested
  • The uptrend from the 2008 lows, line d, is now in the $71.50 area
  • Weekly OBV did confirm the price highs early in the year, but it has recently violated short-term support at line e
  • OBV is below its weighted moving average but still well above the long-term support at line f
  • There is now resistance in the $78.20-$79.50 area

NEXT: The MLP with the Strongest Chart Pattern

Tickers Mentioned: EPD, KMP, PAA