Considering the Federal Reserve in January announced that it would keep key interest rates low at least through 2014, yield-hungry investors may have to look hard for investments with attractive yields. They may find some solace in what many refer to as hidden jewels - master limited partnerships (MLPS). Keep in mind that MLPs are not corporations, but they do trade on stock exchanges. They pay distributions instead of dividends. The investor is referred to as a unit holder instead of as a shareholder.
Plains All American Pipeline, L.P. (PAA): At a market capitalization of $11.45 billion, the company was trading around $32.62 per unit at the time of writing. The Houston-based company last year paid a distribution of $4.10 per unit, which yields 5.3%. Its price to earnings ratio is $18.22. This is slightly below the industry's price to earnings ratio of $21.18.
PAA is attractive because of the steps it takes to increase its productivity. In January, Plains All American announced that it will build a cryogenic gas processing plant at its multi-product Ross Complex near Ross, N.D. The plant is scheduled to go online in the spring of 2013.
The company has also expanded its crude oil storage capacity by about 30% at its terminal in Cushing, Okla. This is important because Cushing is a hub in the distribution of crude oil in North America.
Plains All American has an operating margin of 3.6% and a gross margin of $5.19.
Given the company's expansion, especially in key areas for gas processing, it is a buy.
Energy Transfer Products (ETP): Units were trading around $49.17 at the time this article was written at the end of January. The company's 52-week trading range is $38.08 to $55.50. At the current market price, the company is capitalized at $10.31 billion. The company's capitalization is three times that of the industry's average of $3.76 billion. It had revenues of $6.49 billion, compared to the industry's $1.6 billion.
Its price to earnings ratio is $37.51. Its earnings per share were $1.31 last year, and it paid a distribution of $3.58, yielding 7.3%. Unit holders will receive a quarterly distribution of $0.89375 per unit ($3.575 annualized) for the 2010's fourth quarter on Feb. 14.
The company's yield was comparable to one of Energy Transfer Product's competitors - Eaton Corp. (ETN) Eaton's distribution was $1.36, yielding 2.8%. Genesis' operating margins were .32%, while gross margins were 5.99%.
Energy's distributions have remained the same at about $3.58 since the second quarter of 2008. The average yield for the top 10 MLPs is about 5.3%. So, the company's 7.2% yield is higher, making it a buy.
Eaton Corporation : Eaton was trading around $49.57 as of the week ending Jan. 27. It had a 52-week range of $33.09 to $56.49. The corporation's capitalization is $16.57 billion. Earnings per share were $3.69 last year. It was paying a $1.36 distribution, which had a yield of 2.8%. Eaton, which has paid annual distributions since 1923, announced in January a quarterly distribution increase of 12%. That amounts to an increase to $.38 per share from $.34 per share. The distribution increase stems from the company's strong 2011 results and its 2012 outlook. Unit holders of record at the close of business on Feb. 4 will receive the distribution payment on Feb. 24.
Operating margins were $10.17, and gross margins were 30%.
The company released its fourth quarter earnings report at the end of January. While it was profitable, it missed estimates. Eaton reported revenue of $4.03 billion, but the company was expected to earn $4.16 billion. That translates to a net income increase to $362 million from $280 million when compared to the same period in 2010. Its net income per share increased 30% to $1.07 from $.82.
Company officials chalked up the earning miss to December revenues falling short of expectations by $200 million. They also pointed to a lower tax rate as a contributor to the miss. Eaton's price to earnings ratio is $13.42.
Genesis Energy (GEL): Units were trading around $28.98 at the time of writing. That was close to the company's 52-week high of $29.83. Its 52-week low was $20.85. At the current market price, Genesis has a market capitalization of $2.09 billion. Its earnings per share last year were $.73 and it paid a distribution of $1.76. The yield was 6.1%.
Genesis continues to expand its business. Last year it completed a $205 million transaction to buy several crude oil pipeline systems in the Gulf of Mexico. It bought them from Marathon Oil Company. The systems include Eugene Island Pipeline System,
Odyssey Pipeline L.L.C.
In January, the company announced it will pay a regular quarterly distribution of $0.44 per unit for the quarter ended Dec. 31, 2011 on Feb.14, 2012. The distribution represents an increase of about 10.2% over the 2010, fourth quarter quarterly distribution of $0.395 per unit. Furthermore, that is an increase of about 3% over the distribution paid with respect to the third quarter of 2011. This marks the 26th consecutive quarter in which Genesis has increased its quarterly distribution.
Investors should consider going long on GEL.
Kinder Morgan Energy Partners (KMP): Units were trading around $85.39 at the time of writing. This is approaching the company's 52-week high of $90.00. Its 52-week low is $63.42. Kinder Morgan is significantly capitalized at $28.55 billion. It pays a 4.64% distribution that yields 5.31%.
The company grossed $8.21 billion in revenues, which far above the industry's $1.6 billion revenue figure. Kinder Morgan's revenues are expected to be bolstered further due to a $140 million expansion investment. In January, it inked an agreement to expand its coal handling facilities along the Gulf Coast. It has also signed a long-term agreement with Arch Coal. The company operates five business segments and reports all of them producing higher annual segment earnings that were 10% more than 2010. They totaled $3.64 billion.
In January, the company declared a quarterly cash distribution per common unit of $1.16 ($4.64 annualized) payable on Feb. 14, 2012. Unit holders of record as of Jan. 31, 2012 will receive the distribution. This represents a 3% increase over the fourth quarter 2010 cash distribution per unit of $1.13, or $4.52 annualized. Since its current manager took over in 1997, KMP has increased the distribution 42 times.
Several factors present growth opportunities. They include the increasing demand for export coal and the company's push to increase the use of renewable fuels.
The steady distribution increases and expansion efforts make this MLP a buy.