Top Picks 2017: Magellan Midstream Partners

01/17/2017 6:00 am EST


Robert Rapier

Editor, Investing Daily

A year ago I argued that the energy sector was trading at a deep discount, and there were some very attractive bargains to be had in the sector, recalls Robert Rapier, editor of Investing Daily's Energy Strategist.

That proved to be true, and a year later the energy sector recovery is underway. My expectation is that the energy sector will outperform the broader markets again in 2017, as it did in 2016.  

My more conservative income recommendation from a year ago, Magellan Midstream Partners (MMP), rose by 13% while yielding over 4%.

Following last year’s excellent results, Magellan Midstream remains my Top Pick for income investors for the coming year.

The company exceeded internal expectations with a 6% year-over-year bump in distributable cash flow. That provided 1.2x coverage for a 4.6% yield that is projected to grow at least another 8% in 2017.

Leverage is among the lowest for a mature MLP at 3.2x debt/EBITDA, but Magellan is nevertheless contemplating at-the-market equity sales to finance a fairly modest slate of capital projects.

The partnership is also interested in acquiring Permian Basin gathering assets to feed its crude pipelines originating in the basin.

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