Seeking Alpha
Profile| Send Message|
( followers)  

<< Return to Part I

This is part II of the Pipeline series. The benefits of investing in pipeline stocks are similar to those of investing in a utility; the ability to generally generate stable cash flows. Once a pipeline company is up and running the operators enjoys stable cash flows from long-term contracts. Due to economic uncertainty and extremely volatile markets, more investors are moving away from speculating and gravitating towards income generating investments. The following filters were used in coming up with this list.

  • A dividend payment history of 4 or more years, or 3 years or more of increasing the yearly dividend.
  • A market cap of $1 billion or higher. Large cap stocks are generally more stable than their small cap counterparts.
  • Operating cash flow of $70 million or more. OCF is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills.
  • A Yield of 5% or higher.
  • Quarterly revenue growth rate (yoy) of 20% or higher or a 3 year total return of 70% or higher.

We also listed the EV value of each company. EV value is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company’s value as opposed to simply looking at the Market cap.

3 of the socks covered today -- DCP Midstream Partners, LP (DPM); Boardwalk Pipeline Partners, LP (BWP); and Enterprise Products Partners L.P (EPD) -- are among Credit Suisse’s top MLP picks.

The overall champ on this list is EPD, it has increased dividends for 12 years, has paying dividends since 1998, has a 5 year dividend growth rate of 6.03%, a 5 year dividend average rate of 7.2% and a total return for the last 3 years of 203%. Out of a possible 5 stars we would assign EPD with 4. Two other noteworthy players both of which we assigned 4 stars out of a possible 5 stars are Kinder Morgan Energy Partners LP (KMP) and Buckeye Partners LP (BPL). Both of them were covered in more detail in our first article of this series.

KMP has a market cap of $ 26 billion and enterprise value of $ 39 billion. KMP has a levered free cash flow of $265 million and a price/sales value of 3.07 and Quarterly revenue growth (yoy) 6%, a ROE of 15.97% and a 5 year total return of 97%. It has been dividends since 1993 and has increased its dividend payment for 14 years. Its 5 year dividend growth rate is 7.31% and its 5 year dividend payment average is 7.10%.

BPL has a market cap of $ 5.82 billion and enterprise value of $ 8.5 billion. The total cash it has amounts to $0.17 per share. BPL has a levered free cash flow of -$63 million and a price/sales value of 1.31. It has been paying dividends since 1990 and has increased them for 15 years. Its 5 year dividend growth rate is 5.88% and its 5 year dividend payment average is 7.60%. Its total 3 year return is 171% and its total 5 year return is 79%. KMP and BPL were covered in more detail in the 1st article of this series.

DCP Midstream Partners LP. (DPM)

It has enterprise value of $2.73 billion and price/sales value of 1.79. It has quarterly revenue growth (yoy) of 29%. Insiders have a 27% stake in the company, and its total return for the past 3 years is 495%.

  • ROE 7%
  • Return on assets 6.12%
  • Total debt $1.48B
  • 200 day moving average $ 47.87
  • Book value $17.42
  • Dividend yield 5 year Average 10.8%
  • Dividend rate $2.52
  • Payout ratio 144%
  • Dividend growth rate 3 year average 17.3%
  • Consecutive dividend increases 4 years
  • Paying dividends since 2006
  • Total return last 3 years 495%
  • Total return last 5 years 61%

MarkWest Energy Partners LP. (MWE)

It has enterprise value of $6 billion and price/sales value of 3.25. It has quarterly revenue growth (yoy) of 37%. Insiders have a 37% stake in the company, and its total return for the past 3 years is 442%.

  • ROE 7%
  • Return on assets 6.12%
  • Total debt $1.48B
  • 200 day moving average $ 47.87
  • Book value $17.42
  • Dividend yield 5 year Average 9.7%
  • Dividend rate $2.75
  • Payout ratio 299%
  • Dividend growth rate 3 year average 9.17%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2002
  • Total return last 3 years 442%
  • Total return last 5 years 133%

Crestwood Midstream Partners LP (CMLP)

It has enterprise value of $1.65 billion and price/sales value of 6.62. It has a positive levered free cash flow rate of $6 million and quarterly revenue growth (yoy) of 93%. Insiders have a 64% stake in the company; its 3 year total return is a very strong 324.

  • ROE 11.63%
  • Return on assets 6.2%
  • Total debt $435M
  • 200 day moving average $26.89
  • Book value $11.42
  • Dividend yield 5 year Average N/A
  • Dividend rate $1.81
  • Payout ratio 181%
  • Dividend growth rate 3 year average 11.27%
  • Consecutive dividend increases 3 years
  • Paying dividends since 2007
  • Total return last 3 years 324%
  • Total return last 5 years N/A

Boardwalk Pipeline Partners, LP (BWP)

It has enterprise value of $8.68 billion and price/sales value of 4.76. It has a positive levered free cash flow rate of $177 million and Quarterly revenue growth (yoy) of 4.4%. Insiders have a 53.4% stake in the company.

  • ROE 7.2%
  • Return on assets 3%
  • Total debt 3.2B
  • 200 day moving average $27.08
  • Book value $16.04
  • Dividend yield 5 year Average 7.3%
  • Dividend rate $2.19
  • Payout ratio 171%
  • Dividend growth rate 5 year average 10.8%
  • Consecutive dividend increases 4 years
  • Paying dividends since 2006
  • Total return last 3 years 75%
  • Total return last 5 years 23%

Enterprise Products Partners LP (EPD)

It has a market cap of $39.5 billion an enterprise value of $54.9 billion and price/sales value of 0.94. The total cash it has amounts to $0.08 per share. It has a very strong quarterly earnings growth rate (yoy) of 1,174.10%, and insiders have a 21.5% stake in the company.

  • ROE 14.55%
  • Return on assets 5.23%
  • Quarterly earnings growth (yoy) 1,174.10%
  • Total debt $15.4B
  • 200 day moving average $42.49
  • Book value $13.40
  • Dividend yield 5 year Average 7.2%
  • Dividend rate $2.40
  • Payout ratio 190%
  • Dividend growth rate 5 year average 6.03%
  • Consecutive dividend increases 12 years
  • Paying dividends since 1998
  • Total return last 3 years 203%
  • Total return last 5 years 99%

Disclaimer: Do not treat this as a buying list. It is very important that you check the finer details in each of the mentioned plays before investing any capital in them. Some investors are happy with taking enormous amounts of risks, while others are bothered by the slightest degree risk; it is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies -- let the buyer beware.

Continue to Part III >>

Source: 5 Pipeline Stocks With Superb Yields, Part II