Long-term yields for U.S. Treasuries should indeed firm but be tempered by a slowing as this phase o...
Plug Into This Pipeline MLP
05/22/2012 11:30 am EST
It's time to look back to the energy patch and master limited partnerships to find some opportunities for both growth and income, writes Mark Skousen of High-Income Alert.
We got out of Main Street Capital (MAIN) last Monday, locking in a short-term gain.
My advice? Take the proceeds and put them to work in a stock we’ve traded profitably before: Plains All American Pipeline (PAA).
Based in Houston, Plains is a publicly traded limited partnership that transports, stores, and markets crude oil and other refined products, including liquefied natural gas.
Its diversified portfolio plays a vital role in the movement of US and Canadian energy supplies. The partnership transports more than 3 million barrels of crude and other refined products a day through more than 16,000 miles of pipelines.
Pipelines still offer, by far, the cheapest way to ship oil and gas over long distances. Trains and trucks offer some competition, but pipelines are much less labor-intensive and require little maintenance.
Furthermore, there are significant barriers to entry. Acquiring the regulatory approval to build a new pipeline is a long and difficult process. And the significant investment required generally stops new competition in its tracks.
In addition, the financial metrics at Plains are top-notch. In the most recent quarter, the company’s net income jumped 26% on a 20% increase in sales.
Plus, Plains just finished a new addition to its pipeline network, straddling large swaths of the oil-and-gas-rich Permian Basin region of West Texas and New Mexico. The firm announced earlier this month that oil shipments rose 16% to an average of 454,000 barrels a day.
This investment offers plenty of upside potential, plus a large and growing dividend yield of 5.2%. So, pick up PAA at the market and place a protective stop at $69. If you prefer to play this one more aggressively, try the August $85 calls, which last traded at 80 cents.
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