We believe that MLPs offer retirees (and other income investors) stable yields that are typically higher than those of common stocks. In addition, MLP returns have traditionally had low correlations with stocks and bonds, making them good portfolio diversification assets (especially in times of economic uncertainty).
In Part 1 of this series, we highlighted 5 MLPs that currently have a Parsimony Rating over 90. Note that our composite rating ranges from 0 (lowest) to 99 (highest).
As discussed in Part 1, we believe that the recent pullback in the MLP market is offering investors the opportunity to pick up some great MLPs at low-risk entry points. In that spirit, below are our target "Buy Zones" for each of these top-rated MLPs.
ONEOK Partners (OKS) is one of our favorite MLPs. Although you can't see it from the daily chart above, the stock is in a very strong long-term uptrend. The company has delivered shareholders an impressive 5-year total return of over 125% and the stock has a current dividend yield of 4.6%, which is why it has a high risk-reward rating. OKS is down over 10% from its most recent high of $61.58 and we believe that the stock will continue to oscillate around the 50-day moving average before heading higher later this year. Now is a good opportunity to add to your position.
Kinder Morgan Energy Partners (KMP) is another one of our favorite MLPs. The company currently pays a juicy dividend yield of 6.2% and we have been patiently waiting for the stock to enter our "Buy Zone" for a few months now. KMP is now down 15% from its recent peak of $90.60, which is the high-end of our target correction range. We believe that this is a low-risk entry point for the stock.
Enterprise Products Partners (EPD) has delivered shareholders an impressive 5-year total return of over 118% and the stock has a current dividend yield of 5.2%. The stock is currently getting support around the recent low in mid-April ($48.50) and we think that investors should use this opportunity to start averaging in to a position.
Plains All American (PAA) has both a risk-reward profile rating and a relative strength rating over 90. The stock is up 37% over the past 12-months and we think that this strength will continue through the end of the year. As shown in the chart above, the $76.00 level has help as support three different times in the past few months and we think the PAA is poised to move higher from here.
Magellan Midstream Partners (MMP) has also delivered shareholders a 5-year total return in excess of 100%. Since MMP has the lowest beta of the group (0.31), the stock tends to be less volatile during the corrections. That said, MMP is only down about 7% from its recent peak and we would like to see the stock pull back a little further before pulling the trigger.
While MLPs in general tend to offer investors stable risk-adjusted returns, we feel that the 5 listed above are the cream of the MLP crop. Investors should definitely consider adding these stocks to their portfolio at current levels. Patiently waiting for a low-risk entry point for a given stock will drastically improve your investment results over the long-term.