3 MLPs For Attractive Returns

Includes: CLMT, EPD, WAB, WPZ
by: Efsinvestment

By Siraj Sarwar

In a soft economy, income-seekers are looking for best stocks with low risk and huge gains. In these volatile situations, master limited partnerships are performing better than many other sectors. The energy pipeline operators might fill that gap in the dividend investor's portfolio. These giants transport natural gas, crude oil and other petroleum products. The MLP business model is safe for income seekers thanks to fee-based contracts, compared to other contracts.

Due to the rising demand of petroleum products, MLPs' incomes and dividends are also growing. In addition, MLPs offers significant tax benefits to unit holders. In this article, I pick three MLPs for attractive returns.

Enterprise Products Partners

Enterprise Products Partners (NYSE:EPD) is among the largest master limited partnerships in the U.S. The company processes and transports energy commodities, mostly natural gas liquids, natural gas, and refined products.

Enterprise Product Partners raised distributions over the last 34 successive quarters. Recently, it raised quarterly cash distributions by 6.1%. Currently, its cash distributions stand at $0.66 per unit. Enterprise cash flow looks at solid position as cash flow provides 1.3 times coverage to unit holders.

Enterprise's financial situation is also at an attractive position. The MLP generated gross operating margin of $1.1 billion at the end of Q3. Moreover, Enterprise's net income stood at $588 million. Furthermore, the MLP is generating record volumes in its crude oil and natural gas pipeline volumes.

The enterprise also generated record fee-based natural gas processing volumes. Enterprise is moving to fee-based business. Fee-based contracts are providing more sustainability to the company cash flows thanks to higher returns.

This MLPs liquidity position is also at a stable level. At the end of Q3, its debt was standing at $1.4 billion. I believe cash flows are enough to cover debt obligations at present. Enterprise Product Partners' current ratio stands at 0.81.

At the end of Q3, Enterprise has liquidity and borrowing facility of $3.4 billion. Moreover, Enterprise is investing its shareholder's cash very sensibly in growth opportunities. Enterprise invested capital of $1.1 billion at the end of Q3. The capital expenditure of $1.1 billion includes capital expenditure of $1 billion in growth opportunities.

Calumet Specialty Products Partners

Calumet Specialty Products Partners (NASDAQ:CLMT) owns five refinery plants in Pennsylvania, Texas, and Louisiana that process crude oil into specialty products, including lubricating oils and solvents. Moreover, the partnership also provides fuel products like jet fuel, diesel, and gasoline.

Recently, the MLP announced a quarterly cash distribution of $0.65 per unit. Since 2009, the partnership increased distributions from $0.45 to $0.65. The MLP has lifted cash distributions by 28 percent over the past four years. Calumet has an attractive payout ratio of 66.2 percent.

At the end of Q3, the partnership's net income stands at $42.4 million. For the first nine months of 2012, Calumet increased net income by $143.8 million. The partnership is displaying strong growth in revenues; average three year revenue growth stands at 8%.

The MLP has plenty of liquid assets, cash flows and borrowing capability to cover its debt obligations. In addition, the MLPs existing cash flows are adequate to meet debt and expected capital expenditures. For the first nine months, the partnership's cash flow from operating activities was standing at $289.

The MLP has been on an outstanding growth spurt for the last three years. Calumet's business model offers attractive profitability levels. Future projections of the MLP are also exceptional. Calumet projected to reach $3.17 per unit mark by the end of 2012. Furthermore, the MLP has anticipated producing $3.58 per unit in 2013.

Williams Partners

Recently, Williams Partners (NYSE:WPZ) increased quarterly distributions to 0.80 cents. It is an increase of 8% over the previous year quarter and 2% over the second quarter. Williams Partners trailing yield stand at 6.26% and projected yield at 6.47%. The company is looking to increase its cash distributions by 8% for fiscal 2012 and 9% for 2013 and 2014. This means, the partnership distributions will hike from $3.14 per share in 2012 to $3.75 per share by 4014.

The partnership's financial situation also symbolizes high growth prospects. Williams Partners generated $778 million in the first months of 2012. Moreover, the partnership generated huge cash flows of $1.08 billion. Williams Partners projected to generate $1.6 billion by the end of 2012. The partnership has an attractive cash distribution ratio. Despite poor commodity to prices, its strong cash distribution coverage ratio enabled to increase distributions.

During the year, Williams Partners issued huge amount of equity to support various projects. The partnership is seeking to increase its distributable cash flows by acquisitions. Recently, the partnership announced to acquire Williams Company's (NYSE:WMB) 83.3% interest of Geismar olefins production facility. Exposure to ethylene will provide more firmness in the company's distributable cash flows.


MLPs always pay huge dividends due to highly stable business models. All of the MLPs mentioned above are offering substantial dividends. Above all, dividends of these MLPs are low-risk and have huge growth prospects. These MLPs seems to be a great pick for income portfolios. Williams Partners is a real cash generating machine for retirees. Calumet Specialty Product Partners has a great business model with strong distributions. Enterprise Product Partners has a defensive business model offering substantial distributions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Siraj Sarwar, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

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