By Mitchell Clark, B.Comm
Quite a bit of speculative fervor has been zapped out of this market, which is helpful for the longer-run trend.
With the exception of biotechnology stocks, trading action has softened in initial public offerings (IPOs), 3D (three-dimensional) printer stocks, cloud software stocks, and even a lot of restaurant stocks that only recently were very hot.
The stock market is just a continuing cycle of fluctuating investor sentiment. Valuations among junior energy producers got really excessive last year and the entire group now seems to be in consolidation.
Gold and silver stocks appear to have been toast for a while. As is always the case in resource investing, even the best growth stories can't generally get their share prices moving if the underlying commodity price is stagnant. Precious metals stocks have always traded in manias, and this is not likely to change.
In a slow-growth environment, dividend income is key. And after an exceptional year like 2013, it may just be the only rate of return to be had.
But like so many large-cap stocks last year, some of the best dividend payers have already gone up tremendously. There isn't a lot of value for an equity buyer these days.
One specific sector that continues to be relatively hot is the master limited partnerships (MLPs) of energy companies. There is very good yield to be had from this sector in addition to the potential for capital gains. There have been countless new listings of these securities, and the North American production boom is the reason.
One firm that illustrates the combination of capital gains and income that can be found in this specific sector is EQT Midstream Partners, LP (EQM), a limited partnership generating solid quarterly income. We looked at this enterprise in June of last year and the position continues to do very well. (See "The Lucrative Business of Oil and Gas Storage.")
EQM closed its IPO on July 2, 2012, selling 14.4 million units to acquire and develop midstream assets in the Appalachian Basin, across 22 counties in Pennsylvania and West Virginia. The partnership is a natural gas transmission and storage business, with approximately 2,400 miles of regulated, low-pressure gathering lines. Virtually all of the partnership's revenues are generated under interruptible gathering service contracts. Its two-year chart is featured below:
Chart courtesy of www.StockCharts.com
EQM recently increased its quarterly cash distribution to $0.46 per unit, representing a seven-percent gain over the third quarter of 2013 and an impressive 31% over the comparable fourth quarter of 2012. The partnership expects to maintain a minimum quarterly distribution increase of $0.03 per unit throughout 2014.
These partnerships, or stocks, are likely to continue to be popular among income-seeking investors because real economic growth is still a tough thing to come by. It's the combination of income growth and the potential for capital gains that has made these traditionally conservative securities so attractive.
There are countless new listings of energy-related partnerships, and it's a sector worth following, especially by those investors who are looking for quarterly/monthly income. While the rest of the stock market takes a break, this specific sector should continue to be robust.