Seeking Alpha
Profile| Send Message|
( followers)  

By Siraj Sarwar

Thanks to the Fed's near zero rate interest policy, we keep living in a low-yield world. The 10-year U.S. Treasury bonds currently yields below 1.7 percent, which has driven several investors to other income-generating assets. However, this move has driven securities such as utility stocks, corporate bonds and real estate investment trusts [REIT] to offer scanty yields compared to their historical norms.

Energy-related master limited partnerships [MLPs], in contrast, still offer substantially higher yields. These partnerships are subject to favorable tax status as long as they derive 90% of their income from qualifying sources such as production and transportation of energy-related commodities.

In this article, I pick three MLPs from diversified business segments within the energy industry. All of these MLPs currently have a dividend yield over 5%. These MLPs have shown strong revenue and earnings growth over the years. Moreover, all three MLPs have been generating record earnings year over year and quarter over quarter. These are AmeriGas Partners L.P. (NYSE:APU), Kinder Morgan Partners (NYSE:KMP), and Alliance Resource Partners (NASDAQ:ARLP).

APU Dividend Chart
(Click to enlarge)

APU Dividend data by YCharts

AmeriGas Partners L.P. is America's largest retail propane marketer, serving over two million customers in all 50 states from roughly 2,100 distribution locations.

AmeriGas has been returning significant returns to investors over the years. Recently, the partnership announced a quarterly dividend of $0.80 per share. The partnership has sustained similar quarterly dividends over the previous four quarters. At the end of 2012, the partnership returned an annual dividend of $3.2 per share, yielding at 7.43%.

AmeriGas has been showing exceptional revenue growth over the years. In 2010, the partnership generated annual revenue of $2.3 billion, which increased to $3.1 billion in the last twelve months. In the past five years, AmeriGas has increased its revenue at an enormous pace of 5.11%. Moreover, AmeriGas has been increasing revenues at 28% quarter over quarter.

Recently, it announced first quarter results with a record net income of $96.7 million compared to $42.5 million for the same quarter last year. The partnership's EBITDA currently stands at $193.3 million, a substantial increase of $106 million over the past year's quarter. Furthermore, the partnership has been consistently increasing earnings per share by 68% quarter over quarter. On the negative side, the partnership has low margins while converting sales into profits. The partnership's operating margin and net margin stands at 8.0% and 3.3% respectively.

The partnership has strong cash flows at present. Operating cash flows are growing at a massive rate, and expanded to $397 million in the trailing twelve months. Since 2010, the partnership has been able to increase cash flows by nearly $200 million. Moreover, free cash flows are also sketching same results. In the same period, free cash flows expanded from $136 million to $289 million at present.

I believe AmeriGas is a perfect long-term pick for income-oriented investors. The partnership plans to raise dividends by 5% on an annual basis. At present, the partnership offers an attractive annual dividend of $3.2 per share, yielding at 7.43%. AmeriGas' business model is a bit expensive due to high customer switching costs. However, I believe that its margins will improve as the partnership completes its Heritage acquisition.

Kinder Morgan Energy Partners, L.P. is one of the largest pipeline transportation and energy storage companies in America. Kinder Morgan owns and manages a portfolio of energy transportation and storage assets.

Over the years, Kinder Morgan has been offering substantial returns to investors. It has a history of steadily increasing dividends. Recently, the partnership increased its quarterly dividend by 11% to $1.29 per share. At the end of 2012, Kinder Morgan paid an annual dividend of $4.98 per share, yielding at 5.75%.

The partnership has displayed solid growth in revenues and earnings. Kinder Morgan has been showing exceptional revenue growth over the years. In 2010, the partnership generated annual revenue of $8 billion which increased to $9 billion in the last twelve months. In the past three years, the partnership has increased its revenue at an enormous pace of 7.3%.

Recently, it announced full year results with record EBITDA of $4.38 billion compared to $3.6 billion for the last year. The partnership's record EBITDA shows an increase of 20% over the past year's quarter. Furthermore, the partnership has been increasing EPS by 75.26% quarter over a quarter. Kinder Morgan has huge margins while converting sales into profits. The partnership's operating margin and net margin stand at 27% and 23% respectively.

The partnership has strong cash flows at present. Operating cash flows are growing at a massive rate and expanded to $3.1 billion in the trailing twelve months. Since 2010, the partnership has been able to increase cash flows by nearly $758 million. Moreover, free cash flows are also increasing at a steady rate though the partnership is currently making huge capital expenditures in growth opportunities. At the end of 2012, free cash flows stood at $1.3 billion.

Kinder Morgan Energy Partners is a safe pick for dividend investors. The partnership has shown solid growth in all its business segments. Kinder Morgan has strong operating and free cash flows at present. At the same time, the partnership is investing heavily in growth opportunities. Moreover, the partnership has a low cost business model which further supports and enhances distributions.

Alliance Resource Partners, L.P. is a marketer and producer of coal, mainly to major United States utilities and industrial users. While coal stocks experienced significant downturns, Alliance Resources has been one of the best dividend stocks. The partnership has been constantly increasing its dividend quarter over quarter. Recently, the partnership announced a quarterly dividend of $1.107 per unit, an increase of 2.1% over the past year's quarter. For the full year of 2012, the partnership distributed an annual dividend of $2.96 per share, yielding at 6.96%.

The partnership has displayed solid growth in both revenues and earnings. Alliance Resources has been showing exceptional revenue growth over the years. In 2010, the partnership generated annual revenue of $1.6 billion, which increased to $1.9 billion in the last twelve months. In the past three years, the partnership has increased revenue at a pace of 16.8%.

Recently, it announced full year results with net income of $335.6 million, or $6.12 per share. The partnership has generated record operating and financial results for the past consecutive 12 years in a row. Alliance has generated record EBITDA of $581.1 million in 2012 compared to $570.8 million for 2011. The partnership's Q4 record EBITDA shows an increase of 28.9% over the past year's quarter.

The partnership has strong cash flows at present. Operating cash flows are growing at a massive rate and expanded to $573 million in the trailing twelve months. Since 2009, the partnership has been able to increase cash flows by nearly $290 million. Moreover, free cash flows are also increasing at a steady rate though the partnership is currently making huge capital expenditure in growth opportunities. At the end of 2012, free cash flows stood at $135 million.

The partnership has shown exceptional performance over the years. Amidst chaotic financial circumstances, it managed to consistently post record results in 12 successive years. As another indication of a successful year, the partnership increased its distributions by 12% in the last year alone. With recent acquisitions, the partnership could be a good play to invest in non-oil, non-gas MLPs.

Source: 3 MLPs For Strong Income