2 High Yielding Energy Plays For Income Investors

Includes: ACMP, CHK, LGCY
by: Bret Jensen

Finding good yield continues to remain challenging in the Federal Reserve driven low interest rate environment. Master limited partnerships offer strong yields and a relatively stable way to invest in the domestic oil and gas sector which is growing rapidly thanks to fracking technology. Here are two picks from different parts of the energy infrastructure arena that income investors should consider.

"Access Midstream Partners, L.P. (NYSE:ACMP) owns, operates, develops, and acquires natural gas gathering systems and other midstream energy assets in the United States. Its assets are located in Texas, Louisiana, Oklahoma, Kansas, Arkansas, West Virginia, and Pennsylvania." (Business description from Yahoo Finance)

4 reasons ACMP is solid play for income investors at $30 a share:

  1. ACMP pays a yield of 5.6% and it has doubled its distribution payouts since it became public in 2010.
  2. The transition and acquisition of Chesapeake Midstream Partners is complete, ACMP is the result and new name for that entity. ACMP is now industry's largest gathering and processing master limited partnership as measured by throughput volume. Separating from the mess that is Chesapeake Energy (NYSE:CHK) has to be viewed as a positive.
  3. TheStreet just upgraded ACMP to a "Buy" and it made its Top Ten list of upgrades for the week. It would not surprise me if this is the first of many upgrades.
  4. Revenues should come with just under 10% in FY2012 and analysts project around 15% sales increases in FY2013. ACMP has a very reasonable five year projected PEG (1.49) for a high yielder.

"Legacy Reserves LP (NASDAQ:LGCY) an independent oil and natural gas limited partnership, engages in the acquisition and development of oil and natural gas properties primarily located in the Permian Basin, Mid-Continent, and Rocky Mountain regions of the United States." (Business description from Yahoo Finance)

4 reasons LGCY still works as a good yield investment at under $28 a share:

  1. LGCY provides a robust yield of 8% and has raised payouts over 35% over the past five years.
  2. The 8 analysts that cover the stock have a median price target of $32 a share. The entity was initiated with positive ratings in the second quarter by both MLV & Co. and Global Hunter Securities.
  3. Insiders own over 20% of the MLP, 70% of its production is oil & liquids, and it has a strong hedging program to take the volatility out of earnings and distributions.
  4. The partnership has a strong record of accretive acquisitions and a solid balance sheet. It has long-lived assets and has grown its EBITDA at a 30% CAGR over the past five years.

Disclosure: I am long LGCY. 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.

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