Eight Non-Oil & Gas MLP Recommendations

Today we'll be finishing off the MLP miniseries by taking a quick look at some limited partnerships outside of the oil and gas industries as well as two MLP-focused funds.

Coal MLPs

You might just want to take a gander at these since coal could be an integral part of President-elect Obama's energy policy. They're all trading at or very near their all-time lows so now could be a good time to begin adding one or two to your growth and income portfolio.

Alliance Res Partners (ARLP) & Alliance Holdings (AHGP). Alliance Holdings is the general partner component of Alliance Res.* (Please see explanatory note below.) Although earnings were off by 25% in the last quarter, analysts expect huge growth in 2009. The company has steadily increased earnings since mid-2006 inception.

Natural Resource Partners (NRP). The company reported record Q-3 revenues and increased distributable cash flow by 59%. It's steadily increased distributions since 2002 inception.

Penn VA Resources Partners (PVR). Despite a decrease in third quarter earnings due to cash-payments to settle derivative contracts and higher interest expenses, the company CEO, James Dearlove, keeps an optimistic outlook:

At of the end of the third quarter, we had approximately $140 million of unused borrowing capacity under our $700 million revolving credit facility, which we believe provides adequate cushion to support our working capital needs and some modest growth opportunities. We are also confident that the fundamental characteristics of our business segments remain strong.

Perhaps this is why this company has a higher distribution yield than the other two.

Fun & Done MLPs

There's two other MLPs that I'd like to cover. One wants to make sure that you have a good time and the other steps in when your time is up.

Cedar Fair (FUN). (You gotta love the ticker symbol.) This limited partnership owns and operates amusement parks, water parks, and five hotels mostly in the Midwest and the Mid-Atlantic. Probably its most famous holding is Knott's Berry Farm in Southern California. If you think that amusement parks have been suffering due to the recession, you'd be wrong. Revenues across the board have been up so far this year and Halloween sparked better than expected park attendance. Even if the economy worsens, the parks are closed until spring and by that time, the recession may have thawed. The major downside is debt, and the company has a lot of that. Paying down some of it might require the company to reach into its unitholders' pockets and reduce some of that juicy 14% yield.

This is a riskier play, but it could eventually pay off handsomely.

StoneMor Partners (STON). This grab 'em/slab 'em company owns and operates 223 cemeteries mostly in the eastern part of the country. There isn't much news to go on, but I did find that revenues are increasing along with the distribution payout which has increased steadily (although not as dramatically as some of the other MLPs) since it began in 2005. Revenue growth for the next five years is estimated in excess of 10%, not surprising considering the aging of the Baby Boomer generation. (Arg!)

Owning a piece of a plug isn't the sexiest portfolio holding but it could be a very lucrative one in the long run. The bonus is that a passing cemetery will put a smile on your face instead of a frown, and when was the last time that happened?

MLP Funds

I was able to find two funds that engage in MLP investing. One good reason to opt for one of these instead of making your own MLP basket is for tax reasons. With the fund, you'll get all of your necessary tax info in one form, and that could be a very, very good thing.

Bear Stearns Alerian (BSR). This is an exchange-traded note as opposed to a fund. What's the difference? ETNs are subject to the credit risk of the issuing bank. If that doesn't bother you, then check out this fund which tracks the Alerian MLP Index. (I betcha didn't know there was an index that tracked MLPs.) What bothers me about BSR is that it's only been around for a little over a year and it failed to make its September quarterly distribution. I'd really check into this one before buying.

Energy Income & Growth Fund (FEN). The fund has recently changed management but that hasn't help the share price which has dropped almost 30% in the past ten days. Its top holdings include Magellan Midstream (MMP), Energy Transfer Partners (ETP), Kinder Morgan (KMP), Enterprise Product Partners (EPE), Plains All American (PAA), Crosstex Energy (XTEX), Enbridge Energy (EEP), Nustar Energy (NS), and Holly Energy (HEP)—many of which were on my list of recommended picks in my previous post.

Note that the trading volume on both of these funds is low. If you like the ETN, you can buy it at this level or lower if you can get it. I'd be patient, though, in picking up FEN which is not showing any signs of price support. If you can snatch it around $12 or less, you'll be getting a yummy deal.

Conclusion

I hope you've seen some of the excellent advantages of adding MLPs to a long-term investment portfolio along with the disadvantages (mostly tax-wise) and potential risks running along the commodity supply-and-demand and short-term credit lines. I do think that despite these negatives, MLPs are a good value especially at these deflated prices, and I hope you think so, too.

Due your do diligence...or something like that.

*Note that many energy-related MLPs are structured where the partnership entity, that is, the company component that actually provides the services, is separated from the general or managing partner. Many MLPs offer both components as separate entities, each with their own ticker symbol. You can invest in either one but I prefer the partnership component because it pays a higher dividend. But if you're cowed by the concommitant tax complications, consider swapping the higher dividend for the tax simplification offered by the general partner. (Consult your tax advisor for further details.)

Stock position: None.

Comments

[carolinacoast:]

Dr Kris is hotter than Warren Buffet

2008 Nov 18 09:39 AM

[je:]

I like your sweater Doc.

2008 Nov 18 11:02 AM

[maryanne:]

cool sweater. what does it say? can't make out the wording

2008 Nov 18 07:09 PM

[MLPtourguide:]

FEN has very a high expense ratio. According to ETF connect the total expenses are over 5%. Also the fund is highly leveraged. You might consider a larger yet similar fund with much lower expenses like KYE or KYN

FEN Common Shares
Management Fees 2.74%
Other Expenses 2.62%
Total 5.36%

KYE Common Shares
Management Fees 1.90%
Other Expenses 0.00%
Total 1.90%

I am not recommending either, but the expenses are so high on FEN and it is much smaller. Others are TYY and TYG which also are larger and have lower overhead. I do like these for the long run, but beware that they are ALL close to breaching loan covenants on their leverage which could cause cessation of dividend payments for a period of time.

2008 Nov 18 07:09 PM

[maxmasmav:]

You wrote "since coal could be an integral part of President-elect Obama's energy policy. " Why do you think President Obama and the Democrat controled Congress would be in favor of coal?

I am a big fan of PVR at these prices, nonetheless, I will not add to my postion until I see a postive sign from Obama that he will be supportive of coal.

2008 Nov 18 07:49 PM

[samadams:]

how quickly we forget--right before the election he was supposed to have said something about bankrupting the coal industry
I don't recall the exact quote or know if there's any substance behind it but I remember this was a topic at my workplace water cooler

2008 Nov 22 06:56 PM

[adaret:]

It was during an interview with the San Francisco examinor or Chronical. He said that if they want to build more coal plants, they will go bankrupt. I believe it was because of greenhouse gasses or carbon emission taxes or regulation.


On Nov 22 06:56 PM samadams wrote:

> how quickly we forget--right before the election he was supposed
> to have said something about bankrupting the coal industry
> I don't recall the exact quote or know if there's any substance behind
> it but I remember this was a topic at my workplace water cooler

2008 Nov 25 10:23 AM

[coolsoupy:]

Politicians - Too simple to use coal and natural gas to bridge our dependence on foreign oil? And mean it for a change!!!!!
Our car companies could make cars for natural gas tomorrow as they already make them in other countries. Tax big oil service stations (independents are all but gone!) that don't put in an order in for nat gas pumps immediately. Listen to Exxon, Cheveron, Shell, etc squeal!!!!

2008 Dec 17 12:19 PM