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.
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.
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%.