MLPs Lining Up for a Happy New Year

Includes: EPD, KMP, KMR
by: Avi Morris

MLPs are concluding their best year in history on a positive note.

The Alerian MLP Index has risen more than 50% in 2009 and almost 60% including reinvested income. As of December 4, the Alerian MLP Index was 266, essentially returning to where it was at the beginning of September 2008 (270) when the plunge in financials began (however the 270 ceiling may be difficult to crack). The record for MLPs in 2009 makes them one of the best performing groups in an outstanding year for stocks.

While many companies, especially financial companies, have had difficulties, most MLPs have continued with their expansion programs adding pipelines and terminals with ample financing available. A few have encountered difficulties, forcing them to eliminate distributions so they could focus on paying down debt. Even they have been able to muddle along with favorable outlooks for their survival.

Enterprises Partners (NYSE:EPD) acquired TEPPCO to become the largest MLP in the US, reducing Kinder Morgan (NYSE:KMP) (NYSE:KMR) to the 2nd largest MLP. To promote their image, KMP announced their intention to pay a distribution of $4.40 in 2010, up from the record $4.20 in 2009. KMP just completed their announced plan to raise $1 billion selling units in 2009. This equity allowed them to increase borrowings for financing expansion of their pipeline systems.

The outlook for the MLP industry continues to be bright. In 2009 the index gained 90, so big an advance that it will be virtually impossible to replicate. If the index can crack through the 270 ceiling, an objective of 300 is attainable. That level would reduce its yield to 7% from 7.9% presently. Maybe MLPs will get more respect in 2010. If so, their unit prices should benefit.

Disclosure: no positions