Finding High Yield In Energy Partnerships

Includes: BPL, CMLP, ETP, RGP
by: Greg Group

One of the best places for investors to find high yield stocks is in the energy sector. While many energy investments are based on the price of the commodity itself, the energy pipelines are different. What's notable about these investments is that their success is tied to demand as opposed to the underlying price of the given commodity, so they experience much less volatility than, say, oil prices, which makes their cash distribution payments more reliable.

Also, when a commodity gets cheap, such as natural gas, then new uses can drive demand such as natural gas liquids. In addition, there always will be demand for energy, no matter what happens to the world economy. Here are 4 stocks with high yields and quality earnings.

Energy Transfer Partners, L.P. (NYSE:ETP) is a limited partnership in the United States engaged in natural gas operations. ETP is trading at $46.86 with a $10 billion market cap. We are encouraged by ETP's initiatives to expand its natural gas liquids (NGL) operations. The partnership's Lone Star entity, a joint venture with Regency Energy Partners LP (RGP 25 Buy), owns and operates NGL storage, fractionation and transportation assets. We believe that its Lone Star entity is poised for growth, given the strong NGL environment.

We see the widening of the crude oil-natural gas ratio prompting producers to pursue oil and liquids rich plays. In particular, the strong demand for NGLs has resulted in an increase in both NGL prices and production. ETP declared a third-quarter cash distribution of $0.89375 per unit, unchanged from the prior year's third-quarter distribution. ETP has a dividend yield of 7.63%.

Regency Energy Partners LP (NYSE:RGP) is engaged in the gathering and processing, contract compression, treating and transportation of natural gas and the transportation, fractionation and storage of natural gas liquids . RGP is trading at $25.856 with a $4 billion market cap. We believe RGP is poised to benefit from increased U.S. natural gas consumption over the long term. We also expect the partnership to benefit from its relationship with its general partner.

We look for this relationship to increase RGP's ability to purchase assets and make third-party acquisitions as well as improve its access to capital markets. RGP plans to develop a series of expansion projects along its gas gathering system in South Texas to meet increasing producer demand at the Eagle Ford Shale. RGP declared a fourth quarter cash distribution of $0.46 per unit, or $1.84 annually, 3.4% higher than the prior year's fourth quarter distribution. RGP has a dividend yield of 7.12%.

Buckeye Partners, L.P. (NYSE:BPL) is a master limited partnership. It owns and operates independent refined petroleum products pipeline systems in the United States, with approximately 5,400 miles of pipeline and 69 active products terminals that provide aggregate storage capacity of over 53 million barrels. BPL is trading at $60.00 with a $6 billion market cap. BPL has become a leading transporter of refined petroleum products in the U.S.

We believe that acquisitions have enhanced its strong position in the Northeast and Midwest, and the steady cash flow from fee-based businesses should help fund additional accretive transactions. In February 2011, the partnership closed on its $1.7 billion BORCO acquisition, expanding its terminal and storage business and international footprint. Also, we see BPL's merger with its general partner improving its liquidity position, simplifying its organizational structure, and lowering its cost of capital. BPL declared a third quarter cash distribution of $1.025 per unit, or $4.10 annualized, versus 2010's third quarter distribution of $0.975, or $3.90 annualized. BPL has a dividend yield of 6.9%.

Crestwood Midstream Partners LP (NYSE:CMLP) is engaged in the business of gathering, compressing, treating, processing and transporting natural gas. CMLP is trading at $29.18 with a $1.2 billion market cap. The partnership in October 2010 changed its name to Crestwood Midstream Partners LP from Quicksilver Gas Services LP to reflect closer business alignment with Crestwood Holdings Partners, LLC, which purchased all of the partnership's general partnership interest.

We have a favorable view of CMLP's fee-based pricing system, which provides stable revenue flows and reduces exposure to commodity price risk. We are also encouraged by the partnership's strategic gathering, processing and treating assets located in the Barnett Shale. CMLP declared a fourth quarter cash distribution of $0.49 per unit, or $1.96 per unit annualized, 14% above the year-earlier level. CMLP has a dividend yield of 6.72%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.