Another Fast Growing Energy MLP For Income Investors

Energy MLPs make up a good portion of my income portfolio. I believe we are in the early innings of a huge domestic energy infrastructure and production build out and the assets should appreciate in an environment of increasing inflation which I foresee as highly likely in the coming years. Yesterday, I profiled Energy Rock Energy Partners (EROC) which yields 9%. Today I profile another core holding, Tesoro Logistics (TLLP). It has a much lower yield but is growing substantially faster and has a deep pocketed parent as well.

Recent positive catalysts for TLLP:

• It just picked up another $210mm in assets from parent Tesoro (TSO). These included its Long Beach marine terminal and Los-Angeles area pipelines.
• MarketWatch had a positive story on the firm and energy MLPs today. The article highlighted Tesoro's intentions to drop over $1B in additional assets down to TLLP in the next year and how that should add around $100mm to TLLP's cash flow. The piece also projected the TLLP's distribution would increase 20% due to this additional cash flow in FY2013.
• Zacks puts its rating as a "Buy" on the shares in August.
• Consensus earnings estimates for both FY2012 and FY2013 have improved some 3% in the last two months.

Tesoro Logistics LP is a subsidiary of Tesoro and engages in the ownership, operation, development, and acquisition of crude oil and refined products logistics assets in the United States through a series of terminals, storage facilities and pipelines.

4 additional reasons TLLP is solid pick up for income investors at $41 a share:

1. TLLP pays a 3.7% distribution and more importantly its payouts have increase some 75% in several increments over the past year. Based on earnings expectations, I would expect payouts to continue a sharp climb up.
2. The partnership is on track to increase by better than 80% in FY2012 and analysts have another 50% increase on tap for FY2013. For a high yielder, it has an attractive five year projected PEG (1.04).
3. TLLP posted negative operating cash flow in FY2009 and FY2010 but has produced over $64mm in OCF in the previous twelve months, up over 80% over FY2011's OCF of $35mm.
4. Earnings are spiking. TLLP has EPS of $1.11, is tracking to $1.82 a share in FY2012 and analysts currently project $2.49 currently in FY2013.

Disclosure: I am long EROC, TSO, TLLP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)