The prospect of steady cash flows in the shape of cash distributions makes master limited partnerships some of the most attractive investments for dividend hunters. Limited partnerships are operating in a number of sectors - however, the partnerships operating in the energy sector have been the best performers. The main reason behind the impressive performance of these partnerships is massive demand for energy, which has resulted in an increase in demand for their services. In this article, we have identified two energy partnerships that have a dividend yield of over 7% and substantial growth potential.
Emerge Energy Services
The first partnership that I will be talking about is a relatively new member of the sector - Emerge Energy Services (NYSE:EMES) had its IPO during the last year - the stock is already up about 175%. Emerge Energy is involved in mining, production and distribution of silica sand. Silica sand is a key ingredient for hydraulic fracturing of gas and oil wells. The partnership is also involved in distribution of biodiesel and refined motor fuels.
The partnership has recently announced its cash distribution for the fourth quarter of 2013. The company will pay $1 per share cash which includes $0.5 distributable cash flow reserved in the third quarter of 2013. The total distribution shows a 16% increase as compared to the previous quarter which was $0.86 per share. At the moment, the dividend yield of the partnership is close to 7.50%.
The company held cash and cash equivalents of $22.7 million according to the third quarterly statement, which represents the most liquid form of assets of the company. Considering the company has to pay $1 per share dividend for the fourth quarter, having 23.22 million shares, the company will have to pay a sum of $23.22 million on February 14th. The liquidity position of the company is extremely strong, and it will not be facing any liquidity issues in the short-term. Additionally, the company's revenues have increased by 53.5% in the third quarter as compared to the previous year. Also, the net profit margin has more than doubled i.e. from 3% to 6.9%, which shows a growth rate of 103%.
The stock price has shown mind boggling growth over the past eight months and it will continue to grow in my opinion. The revenue and earnings are growing at a rapid pace and the growth will certainly translate into higher cash flows. Although the earnings have not come out, we can get an idea of the growth in earnings as the dividend increased by 16%.
Enbridge Energy Partners
Enbridge Energy Partners (NYSE:EEP) holds and controls liquid petroleum and crude oil transportation and storage assets. The company also deals in natural gas processing, transportation and marketing in the U.S. Enbridge's stock performance has been totally opposite to that of Emerge Energy - the stock has fallen about 4% during the past year. However, the dividend yield of the stock remains strong - the partnership has a dividend yield of 7.5%. Furthermore, the company shows strength in its revenue growth and cash flow from operations.
Enbridge Energy Partners has a revenue growth rate of 6.9%, higher than the average industry growth rate of 5.6%. However, the year-over-year growth in revenues for Enbridge was even more impressive as the partnership recorded revenue growth of 14.4%. Moreover, net cash flow from operations has increased by 32.17%, which is also significantly higher than the industry average of 0.96%. Currently, the partnership is struggling with high costs of revenue; as a result, it is experiencing lower net profits. However, the future capital projects should enhance the revenue growth. The partnership is currently involved in Bakken expansion plan. This capital project would provide the company with 145,000 barrels per day of capacity.
Although the growth prospects for the company are strong, it is still going through a rough patch in terms of profitability. Nonetheless, the future growth prospects and cash flows should allow the partnership to grow its cash distributions. However, big gains in the stock price over the short-term look less likely for Enbridge. The capital projects will certainly bring in growth in the long-term, and I believe the stock will be a winner. In the meantime, investors can enjoy the juicy yield and collect cash distributions.
Both the above stocks are about the same in terms of dividend yield. However, Emerge energy would give high returns in the short-term as well as the long-term. On the other hand, Enbridge energy would take some time to start giving capital gains. Both the partnerships look good investments in the long-term. Future prospects for the energy sector are good due to the increasing demand for energy worldwide and increased production by the energy companies. Increased production of oil and gas should result in an increase in demand for the services of these partnerships.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.