Income in the Pipeline

11/04/2009 11:45 am EST


Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

Richard Lehmann, editor of the Forbes/Lehmann Income Securities Investor, has two energy plays for today’s tough economy.

While many stock investors are still licking their wounds, income investors are seeing 2009 as a year for remarkable recovery. This may have something to do with the fact that the financial crisis of 2008 has resulted in an economic outlook which is bleak for growth and profitability. We face an economy in which for consumers, saving rather than spending is the priority and for business, conservatism rather than risk taking is the watchword.

Meanwhile government has as its priority health care reform and cap and trade legislation, i.e. costly programs better done in good times rather than now. Bottom line: Look for income investments and forego the likelihood of huge capital gains in stocks.

Plains All American Pipeline, L.P. (NYSE: PAA) is a publicly traded master limited partnership (“MLP”) engaged in the transportation, storage, terminalling and marketing of crude oil, refined products, and LPG (liquefied petroleum gas and other natural gas related petroleum products). The Partnership handles over three million barrels per day of crude oil, refined products and LPG through their 17,000 miles of gathering and mainline crude oil pipelines, truck fleet, and barges in the US and Canada. They are also engaged in the development and operation of natural gas storage facilities in both countries.

Through a combination of internal and acquisition-oriented growth, Plains All American has increased its quarterly distribution by 101% since its initial public offering in 1998. Revenue for the second quarter 2009 decreased to $4.28 billion from $9.06 billion for the same period in 2008, but at the same time net income moved up to $136 million from $41 million and operating margin increased to 5.53%. These units (shares) are best suited for medium to high-risk portfolios. Buy at or below $50. [Shares closed just above $48 Tuesday—Editor.]

Enterprise Products Partners L.P. (NYSE: EPD) is a publicly traded master limited partnership providing midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, and petrochemicals. Enterprise transports natural gas, NGLs (ethane, propane, normal butane, isobutane and natural gasoline) and crude oil through about 36,000 miles of onshore and offshore pipelines. In addition to transport, their services include natural gas gathering, processing and storage; NGL fractionation, storage, import and export terminalling; crude oil off shore platform services and petrochemical services.

Enterprise has the only integrated North American natural gas and NGL network complete with import and export services. NGLs are primarily used by the petrochemical and refining industries as raw materials.

Second quarter 2009 revenue was $3.51 billion versus last year’s revenue of $6.34 billion. For the same periods, net income decreased from $263.3 million to $186.5 million. A large amount of the reduced revenue and net income can be attributed to one-time partnership structural and investment changes. This security would be a good investment for a medium to high-risk investor. Buy at or below $30. [Shares closed below $28 Tuesday—Editor.]

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