Two Favorite MLPs

11/15/2016 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Left for dead in 2015, master limited partnerships (MLPs) have stormed back so far in 2016, notes Richard Moroney, editor of Upside, a newsletter focused on small and mid-cap ideas.

What’s changed? Most MLPs operate in the energy sector, managing pipelines and storing oil and natural gas. With oil prices at $47 per barrel, up from a 14-year low of $29 in January, the backdrop has improved.

This could potentially spur producers to boost output and capital spending on infrastructure. Higher oil prices have also eased concerns that energy companies will cancel or restructure their payment contracts to MLPs. 

MLPs are known for their fat yields — the average partnership in our universe yields 7.4%. Two of our favorite MLPs are reviewed below.

Ciner Resources (CINR) is one of the largest and lowest-cost producers of natural soda ash in the world. Its products are used in glass, chemicals, and detergent.

In the first half of 2016, distributable cash flow rose a healthy 7%, helping fund dividend hikes. On Nov. 11, the company plans to pay a quarterly per-share distribution of $0.567, up 3% from the year-earlier payment.

Though Ciner’s Overall score has slipped to 81 (out of 100), it’s still 35 points above the MLP average. The Value score is 86 and Quality is 81, helping offset a Momentum score of 28. The stock yields 7.7%.

Improved cost control should help support profit margins and earnings. For 2017, the consensus calls for profit growth of 10% to $2.46. Ciner is rated Buy. 

CONE Midstream Partners (CNNX) earns an Overall score of 99, tied for No. 1 in the MLP group. The stock, which ranks among the Quadrix elite listed on page 2, earns scores of 98 or higher in Momentum, Financial Strength, and Performance.

The company, which operates natural gas pipelines and production facilities in the Marcellus Shale in Pennsylvania and West Virginia, grew sales 33%, net income 34%, and distributable cash flow 66% in the first half of 2016.

The shares have surged 112% so far this year, reflecting the potential for increased drilling activity and outsized gains in distributable cash flow. Yet CONE remains reasonably valued at 13 times estimated current-year earnings.

We caution investors, however, that most distributions from MLPs are returns of capital, which lower the cost basis of the securities. Investors receive a K-1 form, which adds to the complexity of doing taxes.

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By Richard Moroney, Editor of Upside

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