An Energized Trio of MLPs

11/08/2017 5:00 am EST

Focus: ENERGY

Tim Plaehn

Investment Research Analyst, Investors Alley

The energy infrastructure sector has continued to decline, even as the price of crude oil has climbed and stabilized. Earnings season has just started for the energy infrastructure sector and results so far have been positive, notes Tim Plaehn, editor of Investors Alley's The Market Cap.

If more MLPs and infrastructure corporations report strong third quarter results, the sector could really take off starting in November. Here are three companies with currently attractive dividend yields and the potential for much higher share or unit values.

Targa Resources (TRGP) engages in midstream services such as gathering, processing and storing natural gas and crude oil. In February 2016, to simplify the business structure Targa Resources Corp. acquired all the outstanding common units of Targa Resources Partners LP (NGLS) that it did not already own.

The company continues to operate using the MLP model, but is a corporation. At the current $41 per share TRGP yields 9.0%. This stock could easily go over $50 in an MLP rally.

Enterprise Products Partners LP (EPD) has a market cap more than $50 billion and is the largest MLP by enterprise value. The company’s business segments include natural gas pipelines and services.


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EPD has increased its distribution for 62 straight quarters. Unlike most MLPs, Enterprise Products Partners can fund most of its growth projects without issuing additional equity. This $24 MLP could quickly move to over $30. EPD yields 6.9%.

Valero Energy Partners LP (VLP) is controlled by and provides pipeline, storage and terminal services to its sponsor, Valero Energy Corporation (VLO). Through asset drops from Valero, the cash flow and distribution growth at VLP is very predictable.

The VLP payments to investors will grow 25% in 2017 and at least by 20% in 2018, with high probability for 20% growth in future years. Now at $41, VLP could easily surpass its 52-week high of $51. The units currently yield 4.7%.

Owning a bit of the MLP sector should constitute a core part of any serious high-yield investor’s portfolio. Investors in those stocks will not only continue earning a steady stream of income but could very well enjoy considerable share price appreciation.

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