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Akaralph
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Semi-retired consultant residing in beautiful northeast Georgia. Over 40 years of responsible experience in planning, finances and investment management. Primary focus is on portfolio development for retired (or nearly retired) individuals who do not possess great wealth. The Protected Principal... More
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Protected Principal Retirement Investing
  • MLP's In Today's Market
    Being a huge advocate of income investing (with a little growth tacked on), I have long been an advocate of Master Limited Partnerships, particularly those involved in midstream energy activities. For the uninitiated, midstream activities include oil, natural gas, natural gas liquids pipelines and storage facilities.

    For my own portfolio, I try to focus on the pipeline companies, since they are least affected by commodity pricing. However, the OIL and NG transporters are directly affected by the quantities carried through the pipelines. When supplies increase, less product is transported, and vice versa.

    With the recent increase in crude oil prices to the $80 level, and with seasonal demand soon to result in higher NG prices, the upstream (exploration and production) MLP's have recently been the beneficiaries of price appreciation.

    During the recent market downtown MLP's took significant hits; however, just about all of them maintained, or slightly increased quarterly distributions. Beginning in March of this year MLP's began a steady and sharp increase in share prices, which, in my opinion was due in part to recognition by institutional and retail investors that distributions were a constant source of income. This was in comparison to real estate investment trusts, business development corporations and many closed-end funds having to resort to dividend reductions, or, in some cases complete elimination.

    The evaluation of energy MLP's cannot focus solely on quarterly earnings since they are tax shelters, and by design are not intended to be generators of taxable income. It is better to focus on the distribution and the distribution coverage ratio. For example Teppco Partners (TPP) has an unbroken string of increased distributions since their inception in 1990. Recent announcements for the quarter ending September continue to support distributions the same, or slightly higher that the prior quarter, or quarter over quarter versus prior years. The coverage ratio gives an indication of distribution "protection", and can be found in the financial portion of the quarterly earnings release. A coverage ratio of 1.00 is the minimum to consider when seeking to purchase an MLP. Many of the pipeline and upstream MLP's presently sport coverage ratios in the range of 1.15 to 1.35, which is a good indication that distributions should continue at least at present levels.

    As far as selecting price points at which to commit new funds to MLP's, the past six months MLP appreciation of anywhere from 50% to over 100% make the choice a difficult one. During the past week it has become evident based upon distribution announcements that MLP's continue on a positive pathway. Some consolidation within the midstream segment is occurring - of note is the acquisition of TPP by Enterprise (EPD), at a fair premium. 

    Thus far, of the MLP's that I track, and/or own CPNO, CQP, LGCY, NGLS, and NRGY have all announced quarterly distributions the same, or slightly higher than for the quarter ending in June. CQP is an interesting play as they will soon complete the first LNG terminal facility in the United States. A number of analysts have recently maligned CQP, citing the potential for a distribution reduction. However, this criticism can be brought into question by a quick review of their projected revenues and earnings for the next year. It would seem that there is potential for increasing distributions, particularly subsequent to the initiation of operations. A second MLP that I still favor is NRGY, a propane distributor and NG storage operation who just this morning announced their 32nd consecutive increase to the quarterly distribution

    I would also closely watch TLP, WPZ, MMP, NGLS and CPNO for opportunities to buy, or add to existing positions on any market pullback.

    Disclosure: I presently have positions in CPNO, CQP, ENP, EVEP, LGCY, NGLS, NRGY, PVR and TPP.
    Oct 26 11:15 AM | Link | Comment!
  • When The Music Stops
    Just my opinion, but is anyone else concerned about where the markets are headed when investors realize that we are being fed "manipulated" statistics to elevate us into a false sense of security about the economy and our futures.

    With the era of "buy and hold" now history, how can we protect our invested resources. I personally no longer trust mutual funds, and while I retain faith in some closed-end funds, I was burned somewhat by those choosing to severely reduce, or completely eliminate dividends.

    A few years back I became exposed to master limited partnerships (MLP's), their tax advantages, large distributions and high yields. After several weeks of research I decided to focus on midstream energy mlp's, since their share prices are somewhat immune to movements of the underlying oil and natural gas commodities. Further, I noticed that the majority of these had histories of continuous increases to their quarterly distributions - some since their inception.

    Earnings are not the driving factors with the mlp's - distributable cash flow (DCF) and the coverage ratio for the distribution are what really count here. Look for increasing DCF (year over year and quarter vs. prior quarter) and coverage rations in excess of 100%.

    The midstream mlp's consist primarily of pipeline and transportation operations, as opposed to upstream (exploration/production) or downstream (terminaling, storage and distribution) operations. Midstream mlp's including Teppco (TPP), Targa Resources (NGLS), Magellan Midstream Partners (MMP), and Copano (CPNO) all fit the criteria at the present time. Use the Alerian MLP index as a means to further identify portfolio candidates. Many of the mlp's trade options so the opportunity to increase income by writing covered calls only makes them look better.

    Disclosure: I am long TPP, NGLS and CPNO at present.

    Aug 30 1:28 PM | Link | Comment!
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