I have been a big advocate for Energy MLP's for the last six to nine months. I think they are a good vehicle for the low growth environment that we are currently in as they offer solid yield and distribution growth. In addition, they are benefiting from growing domestic energy production that fracking technology is unlocking. One I have liked for a while is Vanguard Natural Resources (VNR).
Key recent catalysts for VNR
- It recently announced a higher distribution payment, its sixth straight quarter of raising its distribution payment.
- It was just upgraded to "Buy" from "Hold" at TheStreet.com.
- In just completed quarter, EBITDA increased 42% to $53.2 million in the first quarter of 2012 from $37.6 million in the first quarter of 2011.
- In same quarter, Distributable Cash Flow increased 57% to $44.5mm Y/Y.
Vanguard Natural Resources - "Vanguard Natural Resources, LLC, through its subsidiaries, engages in the acquisition and development of oil and natural gas properties in the United States. Its properties are located in the southern portion of the Appalachian Basin, primarily in southeast Kentucky and northeast Tennessee; the Permian Basin, primarily in west Texas and southeastern New Mexico; and south Texas". (Business Description from Yahoo Finance)
4 additional reasons Vanguard Natural Resources is a compelling bargain at $27.50 a share:
- The median analysts' price target for the 8 analysts that cover the stock is $32.75.
- It is moving more production to oil & liquid production. Gas production fell Y/Y in the recent earnings report while NGL production was up approximately 40%. Oil & Liquids now make up 2/3's of its production.
- The company is well hedged, which is especially important given low NG prices. The company realized an average of $6.01 per Mcf in the recently reported quarter. Given it hedges, it should receive at least $5 per Mcf through 2014.
- VNR provides an 8.3% yield and has doubled its distribution payments since early 2008.