Some time ago, I recognized that the yield provided by Master Limited Partnerships (“MLPs”) may increasingly become tasteful within an environment of limited income alternatives. With an interest of making an MLP portfolio allocation, I started by looking at MLP focused Closed-End Funds: KYN, KYE, TYG, TYY, FMO, MTP, FEN, TYN, SRV (in order by market cap). With the entire Closed-End Fund group trading at premiums, I focused my effort on screening the professional managers’ own MLP selections. Because of the group’s run-up, I was particularly interested to look at recent insider purchases in conjunction with favorable MLP sub-category yields.

I certainly did not expect my screen to position me as a buyer of K-Sea Transportation Partners shares. Given my own vague recollection of its a) dividend cut, b) disclosure of debt covenant concerns, and c) choice not to provide analysts with guidance – I was very surprised to see that two K-Sea Directors had shortly thereafter made meaningful personal investments in KSP shares at prices from 11.48 to 11.80.

The latest data on insider buying and selling continues to show an alarming trend in insider sales and very low buying. Selling for the latest week climbed 10.8% to $933.45MM from $842MM. More alarming, however, is the continuing very low levels of buying. Buying for the latest week fell to $17.35MM from $37.7MM. Despite the 60% rally in stocks and the green shoots of supposed recovery, insiders continue to exhibit very little faith in the future price of their own stocks via the use of the personal dollars.

Notable purchases:

Big earnings growth and a high dividend are two variables that don't often go together when screening for the best stocks to buy, but in Global Partners' (GLP) case, these 2 features just coalesced in their 2009 Q2 earnings report. A screen for 30%-plus EPS growth this year and quarter-over-quarter, and a 9%-plus dividend turned up mostly energy stocks - oil & gas pipeline or drilling companies, and an assortment of other companies. GLP - a Master Limited Partnership (MLP) firm, just became part of this special group of high dividend paying stocks with high earnings growth. (Many web screeners may not include them yet, as they just reported yesterday).

Although their revenue fell significantly, GLP was able to post major increases in EBITDA, net income, distributable cash flow, net income/diluted unit, by achieving large margin increases, improving their efficiencies, and posting a 3% product volume increase. Here are the numbers:

As we all know, the entire market has been crashing in recent weeks.  The price action in the MLP sector has been no different.  However, unlike many sectors that have been crashing, the businesses of Midstream MLPs are very defensive in nature.  Midstream MLPs can be characterized as having stable cashflows that are backed up by either fees based on the volumes of oil, gasoline or natural gas moved through pipelines or hedges that are used to stabilize the fairly stable cash flows of processing plants. 

Under even a severe recession people will still need to drive to work, heat their homes and turn on their lights.  Midstream MLPs will continue to serve this need by transporting the energy we need to survive.  This idea was recently confirmed by the management of Crosstex Energy LP (Nasdaq:XTEX) on October 2 during their conference call to discuss the impacts of Hurricane Ike.  Below is management’s statement on the matter:

Q2 2008 Earnings Call

August 07, 2008 at 5:00 pm ET