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One of the core holdings in the income part of my portfolio, Linn Energy (LINE) has been very active lately as it strategically adds to its portfolio of income producing assets. It has followed up with its $1.2B purchase of gas producing properties in Kansas from BP Plc. (BP) last year with a $1B purchase of 12,500 acres of NG producing assets in Wyoming from BP. The company's management is executing on a well-thought out plan to increase its cash flow and distributions to its shareholders and showing why it is a great long term holding for income orientated investors that also want some growth.

Key Highlights from the acquisition:

  • It will finance the acquisition with proceeds from a $1B IPO so credit quality will remain the same.
  • The property already has 750 producing wells and 730B cubic feet of reserves which Linn believes will eventually expand to $1.2T cubic feet of reserves. In addition, 23% of the reserves are natural gas liquids which are a much more valuable commodity.
  • Most importantly, the acquisition is expected to add immediately to Linn's distributable cash flow per stock unit.

4 reasons LINE provides solid value for income investors at $36 a share:

  1. LINE provides a robust 8.2% yield and grown its payout by 4% annually over the past five year. I would look for this payout pace to pick up in the medium term based on these new acquisitions.
  2. The 11 analysts that cover the stock have a median price target of $44 a share. In addition, Credit Suisse reiterated its "outperform" rating after this latest purchase.
  3. LINE is selling in near the bottom of its five year valuation range based on P/S and P/B.
  4. The stock looks like it has good technical support at this price level (see chart).


(Click to enlarge)

Source: Linn Energy: An 8% Yielder Determined To Get Much Bigger