A Trio of High Yield MLPs

07/31/2017 2:56 am EST

Focus: ENERGY

Bob Ciura

Contributing Editor, Wyatt Investment Research

These three high-yield MLPs have dividend yields ranging from 5% to 7%. Plus, their fundamentals have remained healthy during the current downturn, which means their dividends are sustainable, even at $50 oil, explains Bob Ciura, contributing editor to Wyatt Research's Daily Profit.


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Investors interested in dividend income should take a closer look at high-quality high yield MLPs like Magellan Midstream Partners (MMP), Enterprise Products Partners (EPD) and Buckeye Partners (BPL).

Magellan, Enterprise Products and Buckeye Partners have all increased their dividends for more than 10 years in a row. These years include the Great Recession of 2007-2008, as well as the current downturn.

Investors might be reluctant to buy MLPs, and who could argue? Many MLPs were ravaged when oil and gas prices fell from 2014 to 2016.

Several MLPs had to cut their dividends to survive. Some suspended their distribution payments altogether. A few ended up in bankruptcy.

However, it is important to remember that the hardest-hit MLPs were in the upstream segment of the oil and gas sector. Upstream refers to exploration and production activities, which are highly reliant on the price of the commodity.

Magellan, Enterprise Products and Buckeye are all midstream MLPs. This means they operate oil and gas storage and transportation assets, such as pipelines and terminals. Magellan owns 9,700 miles of refined products pipeline, along with 80 terminals.

Enterprise Products is an industry goliath. It has a massive network of assets, which includes nearly 50,000 miles of natural gas, natural gas liquids, crude oil and refined products pipelines. It also has more than 250 million barrels of combined storage capacity.

Lastly, Buckeye Partners’ assets include 6,000 miles of pipelines and over 100 terminals. These facilities gave an overall capacity of 55 million barrels.

The major difference between midstream and upstream companies is that midstream companies operate more like toll roads . . . they collect fees based on volumes. Most of their revenues are not based on commodity prices.

Only a small portion of businesses of these high yield MLPs are devoted to activities that are reliant on a high price of oil and gas. This makes them heavily insulated against declines in commodity prices, and it is why all of them continued to raise their dividends over the past three years.

These three high yield MLPs are able to cover their hefty distributions. Magellan has a 5% current yield, while Enterprise Products and Buckeye Partners yield 6% and 7.7%, respectively.

Not only do all three MLPs have high dividend yields, but they raise their distributions on an annual basis. Their consistent dividend growth is thanks to their high cash flow.

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