By Siraj Sarwar
Over the last two decades, the investable universe of publicly traded Master Limited Partnerships [MLPs] has expanded substantially. MLPs have now expanded from oil and gas producers to pipeline operators and even to tanker companies. The popularity of these entities can be attributed to their favorable tax status.
MLPs receive special tax treatments as long as they return 90% of their total income to shareholders. These entities are treated as partnerships not corporations, for tax purposes. As such, Master Limited Partnerships enjoy a lower cost of capital and avoid dividend double taxation.
Master Limited Partnerships are vital vehicles for energy investors. MLPs have allowed energy companies to structure themselves in a way that attracts conservative long-term investors instead of speculators. Therefore, most MLPs are attractive for long-term income investments, rather than capital gains. Kinder Morgan stocks are among the most well known partnerships. There are also several alternatives to the popular stocks in the MLP space.
In this article, I pick three MLPs with both strong financials and massive growth prospects. These are Vanguard Natural Resources (NYSE:VNR), Regency Energy Partners L.P. (NYSE:RGP) and TransMontaigne Partners L.P (NYSE:TLP). These MLPs have a history of increasing revenues and distributable cash flows at a fast pace. They also have strong business models, and they are making aggressive acquisitions to boost their market position.
Vanguard Natural Resources, LLC is focused on the acquisition, production and development of oil and natural gas properties. The company's assets consist primarily of producing and non-producing oil and natural gas reserves.
Currently, the partnership offers a massive month-to-month dividend of $0.2025 per unit. At the end of 2012, the company returned an attractive annual dividend of $2.43 per unit. In addition, the partnership has been consistently increasing dividends over the years. Since 2007, Vanguard increased dividends from $1.71 per unit to $2.43 at present. This is a significant return in low interest rate environments for the shareholders.
The company has been showing a solid financial performance and strong growth prospects. At the end of the first nine months, the partnership increased production in all business segments. The partnership has increased natural gas, oil and Natural Gas Liquids production by 60%, 1% and 60% respectively over the previous year.
Furthermore, Vanguard produced adjusted EBITDA of $164 million by the end of the first nine months. This represents an increase of 48% over the previous year. In addition, the partnership has achieved phenomenal distributable cash flow over the years. For the first nine months, Vanguard increased Distributable Cash Flow [DCF] by 37% to $100 million compared with the previous year's DCF of $73 million.
At the same time, the partnership is investing heavily in growth opportunities. Recently, it announced an acquisition of natural gas and natural gas liquids properties in Colorado, and Wyoming, from Bill Barrett Corporation. I believe these acquisitions will increase its production and further enhances its distributable cash flows.
Regency Energy Partners L.P. is engaged in the gathering, processing, contract compression, transportation and marketing of natural gas and natural gas liquids. Over the years, the partnership has been growing at an incredible rate and providing substantial returns to investors.
Regency offers one of the best dividends in the energy sector. Recently, the partnership announced a quarterly dividend of $0.46 per share. The partnership currently offers an annual dividend of $1.84 per unit, yielding at 7.75%. The partnership maintained a similar quarterly dividend over the six previous quarters. Regency is looking to expand its size by making investments in organic growth.
Furthermore, the partnership has been displaying exceptional revenue growth over the years. Since 2011, Regency increased its revenue from $1 billion to $ 1.3 billion in the trailing twelve months. The partnership has increased revenue at an incredible pace of 9.84% over the previous five years.
At the end of Q3, Regency generated adjusted EBTIDA of 114 million compared to the previous quarter. The company has solid cash flows at present as operating cash flows are growing at massive rates. At the end of Q3, Regency generated distributable cash flow of $68 million. The partnership DCFs provide 0.83 times cover to distributions.
Regency distributable cash flows decreased over the previous quarter, mainly due to higher capital expenditure. In the first nine months, the partnership incurred $557 million in growth opportunities. Moreover, Regency is looking to increase the present value of its existing asset; thus, it incurred $26 million on maintenance expenditure.
Additionally, the partnership is focusing to switch to long-term fee-based contracts. Fee-based contracts provide more stability to its distributable cash flows. I like its portfolio of organic growth projects. I believe these projects will present additional earnings and volume growth all over 2013.
TransMontaigne Partners L.P. is engaged in the terminaling and transportation business with operations mainly in the United States along the Gulf Coast. The partnership also operates in the Midwest, Texas, in Brownsville, along the Mississippi and Ohio Rivers.
Currently, the partnership offers one of the best quarterly dividends of $0.64 per unit. By the end of 2012, the partnership returned an annual dividend of $2.56, yielding at 5.97%. In addition, the partnership has a long history of consistently increasing dividends over the years.
TransMontaigne has displayed appealing revenue growth and solid financial performance over the years. TransMontaigne was consistently able to increase revenue year over year and quarter over quarter. At the end of Q3, the partnership revenue stood at $38.9 million compared to $37.1 million at the end of the previous year's quarter. In the past 5 years, the partnership managed to increase revenue by an incredible 16.27%.
Furthermore, TransMontaigne presently has solid cash flow. At the end of Q3, the partnership generated distributable cash flows of $15.3 million compared to $13.1 million by the end of the previous year's quarter. The partnership is increasing its maintenance expenditure to further enhance distributable cash flows.
TransMontaigne has been providing substantial returns to investors over the years. The partnership has raised its payout by more than 50% in the past seven years. Recently, the partnership acquired a 42.5% ownership interest in Battleground Oil Specialty Terminal Company. I believe this will further improve both its revenue and cash flow growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Efsinvestment is a team of analysts. This article was written by Siraj Sarwar, one of our equity analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.