Enbridge: "On the Verge of Great Things"

07/06/2015 8:00 am EST

Focus: MLPS

Roger Conrad

Founder and Chief Editor, Capitalist Times

This featured energy-sector master limited partnership is on the verge of great things, asserts Roger Conrad, editor of Conrad's Utility Investor, who discusses his latest spotlight recommendation for aggressive income investing.

Enbridge Energy Partners LP (EEP) has generated a total return of more than 30% for our Aggressive Income Portfolio.

Year to date, however, the master limited partnership’s (MLP) stock has given up about 6% of its value, largely because of investor sentiment toward the energy sector.

This downtrend could reverse in a big way when Enbridge (TSX: ENB, NY: ENB)—the Enbridge Energy Partners’ general partner—announces plans to drop down its US oil infrastructure to the MLP.

This is potentially a major upside catalyst. When Enbridge announced plans to transfer a big chunk of its Canadian assets to Enbridge Income Fund (TSX: ENF, OP: EBGUF), the latter’s stock price soared.

Cash flow from these assets enabled Enbridge Income Fund to reward investors with a hefty dividend increase and target annual payout growth of 10% from 2016 to 2019.

Enbridge could opt to drop down its US assets at a more measured pace; however, any clarity on the general partner’s plans would give Enbridge Energy Partners’ stock a boost and potentially accelerate the MLP’s rate of distribution growth.

Enbridge Energy Partners also has a number of promising projects under way, including the Sandpiper pipeline, a joint venture with anchor shipper Marathon Petroleum Corp. (MPC), that will provide takeaway capacity to producers in the Bakken Shale.

Minnesota regulators have determined that the pipeline is a necessity, but have yet to approve the proposed route.

Opponents are also fighting the partnership’s proposed $200 million expansion of its Alberta Clipper pipeline and the $7.5 billion replacement of the aging Line 3 pipeline. Odds favor all of these projects moving forward over the next 12 to 18 months.

In the meantime, management expects volume growth of 10% on Enbridge Energy Partners’ liquids systems, fueled by a full year’s contribution from last year’s project start-ups and customers’ growing preference for pipeline transportation over rail in the Bakken Shale.

The MLP also has about $1 billion worth of expansion projects slated to come onstream this year. With a distribution yield of 6.3% and potential upside from future drop-down transactions, Enbridge Energy Partners LP rates a buy up to $42 per unit.

Investors looking to add exposure to this growth story to a tax-advantaged account should consider Enbridge Energy Management LLC (EEQ), which pays a stock dividend.

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