For power-starved emerging markets, Liquified Natural Gas, or LNG, has become the de facto choice to provide a safe, clean, plentiful, cheap and abundant alternative energy, asserts Bryan Perry, income expert and editor of Cash Machine.
As of the end of 2018, China, Japan, South Korea and India accounted for half of the growth of total global LNG imports. Supplying these foreign markets involves converting natural gas into its liquid state and loading it on LNG tankers. We own Cheniere Energy Partners LP (CQP) in this phase of the business.
When a ship arrives at its destination port, the LNG cargo is offloaded onto what is called a Floating Storage and Regasification Unit (FSRU) where it is then transferred through pipelines to power utilities as the final endpoint.
The purest income play in the FSRU space is Hoegh LNG Partners LP (HMLP), the leading floating LNG service provider. Its strategy is to own, operate and acquire floating storage and regasification units and associated LNG infrastructure assets under long-term charters.
It has interests in five FSRUs that have an industry-leading average remaining firm contract duration of 10.5 years, plus options, as of December 31, 2018.
For the fourth quarter of 2018, Hoegh LNG Partners reported revenues of $37.3 million, compared to $33.7 million for the fourth quarter of 2017. Net income for Q4 2018 came in at $8 million. On Feb. 14, the company paid a $0.44 per unit distribution on common and subordinated units with respect to the fourth quarter of 2018, equivalent to $1.76 per unit on an annual basis.
Hoegh LNG Partners has a very stable distribution history, going back to 2014 when the company paid its first $0.1834 payment that has grown to its current level of $0.44 per quarter.
The rapidly growing LNG industry bodes well for further construction and acquisitions of FSRUs in the future and a further raising of the quarterly payout as well. At its current annual distribution of $1.76, the current yield stands at 9.83%.
Let’s get long in this only publicly traded pure play on FSRUs in what is a booming LNG industry and a mega-investment theme for 2019 and beyond. The stock trades just under $18 and has been in a sideways pattern for the better part of a year, save for the sell-off in December that briefly took the stock down to $15. Buy Hoegh LNG Partners LP under $19.
Hoegh is a growth-oriented partnership set up as a C-Corporation and not as a Master Limited Partnership (MLP). So, investors receive income that is taxed as 1099 income and not K-1 income. Thus, buying HMLP for IRAs and retirement accounts is suitable for tax purposes.
