Pipeline Master Limited Partnerships: Getting Stronger In Unison

Last week Barron’s mentioned master limited partnerships as juicy yield opportunities with strong appreciation potential.  Reuters followed up the next day with an article about the Barron’s article.  Investors seem to have rallied around those articles causing major gains among pipeline companies.

It certainly is refreshing to see a group that has not been viewed as fundamentally flawed (like banks), moving strongly up in unison.  A number of markets had a positive week last week, but not as strong as pipelines.

Here are some of the Reuters comments:

Master limited partnerships, or MLPs, typically invest in energy assets, such as oil fields and natural gas processors, and pass along most of their profits to their investors as tax deferred distributions. Yields today hover around 11 percent, Barron’s said in its most recent addition.

Citigroup thinks its list of 36 MLPs could produce 12-month total returns of 84 percent, Barron’s said.

Seth Glickenhaus, chief investment officer for New York money management firm Glickenhaus, told Barron’s: “MLPs are getting to levels that are very, very interesting. I think their cash flows are going to continue, and at these prices, you are getting very nice yields.”

Here is the table Barron’s provided in their article:

click images to enlarge

This table from our site, which tracks various groups of funds, shows the rush to buy pipelines last week:

Pipeline companies in the table are: (OKS), (WMB), (EP), (BPL), (ETP), (MMP), (TPP), (PAA), (EPD), (NS), (SXL), (KMP), (MWE), (TRP), and (BSR) (an ETN tracking an index of master limited partnerships).

Dow Jones Pipeline Industry (1 week)

Dow Jones Pipeline Industry (1 year)

According to Dow Jones, the pipeline industry was the 12th best performing industry group last week out of 98 groups.  Here is how pipelines and other energy related groups ranked:

• #4 exploration and production (+14.70%)
• #10 coal (+10.61%)
• #12 pipelines (+9.94%)
• #17 integrated oil & gas (+7.97%)
• #71 oil and equipment services (-1.71%)

Note that the DJ pipeline industry group includes both limited partnerships and the general partnerships that manage them.

The particular sub-group of pipelines we track did better than the entire industry of nearly 50 companies.  Our sub-group has a larger average size and greater trading volume.

If the group has bottomed, which may or may not be the case, there is still room for more gains, but last week took a good size chunk. This may be a case of the early birds getting the worms.

We view pipeline companies as alternative forms of real assets.  Like other real estate, they own improved structures on land and charge “rent” for occupancy (the products flowing through their lines, or kept in their storage tanks).  They may be a decent diversification in the real asset category in an asset allocation program.

Weekly updated short-term performance histories of many other fund categories are available at our site.

Comments

[Bhakta:]

You forgot APL! Up from a low of $15 to $22 in the last week.

2008 Oct 19 08:34 PM

[Diegojames:]

Does anyone know if a MLP can buy another or be bought out because some form of consolidation is going to spread through the CNG producers and pipeline and storage companies. Is BP going to BUY someone>>or is CVX going to BUY??? Or is SRE going to buy more Natural Gas producers like SWN or CHK?

Diegojames

2008 Oct 19 10:58 PM

[QVM Group:]

DIEGOJAMES:

Limited Partnerships can buy assets, including other partnerships (at the direction of the General Partner), but Limited Partnerships cannot be bought without the agreement of the General Partner controlling the acquisition target.

2008 Oct 20 12:23 AM

[NOWHEREMAN:]

WMZ was a spin off from wmb, their charter calls for a min. payout of .28 quarterly.

2008 Oct 20 09:24 PM

[maryanne:]

I hold those MLPs and also CANROYs.

One more... pipelines only work across land. When cross the ocean, then TGP (Teekay LNG Partners) has a fleet of modern LNG tankers. 14% yield.

2008 Oct 21 12:48 AM