Big Profits in Energy Pipelines

05/24/2011 3:38 pm EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

First-quarter results from several key players showcased dividend hikes and other bullish omens, writes Roger Conrad, editor of Utility Forecaster.

Dividend-paying stocks have rallied hard the past couple of years. But, unlike bonds, they participate in growth. And good companies raise dividends—a move that, in turn, lifts stock prices.

Our picks’ 2010 earnings were universally solid. Dividends were well covered by the relevant measure of profits: earnings per share for most corporations, and distributable cash flow for master limited partnerships (MLPs). Balance sheets were strengthened, and key operations invested in. Refinancing needs for represented companies are now just a miniscule 4.7% of market capitalization.

Now for some really good news: Based on what we’ve seen so far, first-quarter results have been even better.

Kinder Morgan Energy Partners’ (KMP) numbers bode well for all of our MLPs. Management boosted the quarterly distribution to $1.14 per unit, 6.5% over last year and the fifth consecutive quarterly increase.

Distributable cash flow—the primary measure of MLP profits—rose 8%. And Chairman and CEO Richard Kinder stated in the first-quarter conference call that the MLP “expects to meet or exceed targets” previously set for 2011.

Refined products volumes were up 4.4% year over year, paced by an 11.3% jump in diesel. Natural-gas liquids volumes surged 12.4% on robust demand and added infrastructure. Gas pipeline volumes surged 10%, while terminals boosted earnings 13%.

Buy Kinder Morgan Energy Partners LP up to $75. [Shares traded just below $73 on Tuesday—Editor.]

Note that last month, Enterprise Products Partners LP (EPD) lifted its dividend, while Energy Transfer Partners LP (ETP) and NuStar Energy LP (NS) became major players in Eagle Ford shale natural-gas liquids, after closing acquisitions last month.

Buckeye Partners LP (BPL), meanwhile, is a super bargain after its equity offering locked in a low capital cost for the $225 million purchase of 1,000 miles of refined petroleum pipelines, as well as 33 terminals from cash-starved BP (BP).

Buy Enterprise Products up to $45, Energy Transfer up to $55, and NuStar Energy and Buckeye Partners up to $70. [Trading just below $41, EPD currently yields 5.7%, while ETP is yielding 7.3% near $47. NuStar’s forward yield is at 6.9% near $62, while Buckeye recently traded near $62 and yielded 6.3%—Editor.]

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