TEPPCO Partners: A Pipeline For Profits?

I am a long term owner of Teppco (TPP). This stock, currently paying a well-supported 8.19% dividend (recently raised for the third time in the last four quarters) is trading well below its 200-day average at $34.66 per share.

Down from a high of $46.20 last May and seemingly bottomed from a low of $32.91 in late March, TEPPCO has not met street earnings expectations due in large part to recent acquisition synergies, early repayment of debt instruments and hedging. These are in the past. TEPPCO has a solid management team that is trading away under performing assets and acquiring businesses that should excel over the long term. Not just your average pipeline company, TPP aims to maneuver into a comprehensive energy transportation system.

TEPPCO Partners is a carrier of refined petroleum and liquefied petroleum gases. The company owns and operates petrochemical and natural gas liquids pipelines, engaged in crude oil transportation, storage, gathering and marketing, owns and operates natural gas gathering systems and owns the Seaway Crude Pipeline Company, Centennial Pipeline and the Jonah Gas Gathering Company. TPP also has an undivided interest in the Basin Pipeline.

TEPPCO operates in three business segments: transportation, marketing and storage of refined products and petrochemicals; gathering, transportation, marketing and storage of crude oil and distribution of lubrication oils and speciality chemicals; and the gathering of natural gas, fractionation of natural gas liquids and transportation of same.

Analysts are neutral to a bit bearish on the company, mainly because of the aforementioned earnings dip. I believe this presents an opportunity for contrarians to pick up TPP cheaply with a superb tax-advantaged dividend floor.

TEPPCO is a company moving forward. Although the past year has not produced the stellar earnings the analysts and I expected, its future looks very bright. Holding this stock through both thick and thin as a dividend play has been strategically successful for me. Now, the promise of company performance to propel the stock price upwards may be more than a pipe dream.

Comments

[stormy:]

This is not an ordinary corporation...it is a Master Limited Partnership. They are not dividends, they are distributions. Semantics aside, the uninformed investor will have a rude awakeing come tax time when they receive a "K-1" to report thier share of the partnerships profits, losses, depreciation etc, and not a "normal 1099 DIV" to report thier dividends. I own this, and its been good to me, but buyer beware...its a little more complicated at tax time.

2008 May 09 08:29 AM

[Thomas Smic...:]

I usually have mentioned K-1 tax forms when discussing MLPs and other tax-advantaged entities, but the process is so easy now with Turbo Tax and other home tax preparation software that it is not worth the typing space to discuss.

2008 May 09 08:35 AM

[stormy:]

I agree that TTax has made the yearly tax filings pretty much a non issue. However, the prospect of dealing with the tax consequences upon the sale of this has me resigned to take this to the grave with me, and let my heirs deal with it. My only point is that MLP's are a different animal and the investor must know this before investing. I've also invested in KMR, to enjoy the benefits of the industry, but not the hassles of tax issues.

2008 May 09 08:51 AM

[cato:]

Teppco had the unfortunate problem that the partnership technically terminated momentarily in '07 due to ownership changes. That meant that a lot of unitholders (like me) got saddled with fully taxable regular income (not even qualified dividend income!) that actually exceeded the amount of the distributions paid out. A very nasty surprise.

2008 May 09 05:03 PM

[Mel Famy:]

I have owned this L.P. since it went public. Currently, I am ahead about 400%, including dividends. I agree, buy and hold is the best strategy with Teppco.

2008 May 10 07:18 AM