5-Star MLPs Ready to Rocket

With Treasuries at extreme lows and continuing concerns over the stock market's recovery, savvy investors have had to look elsewhere to find solid yields. Sure, big-name players such as Procter & Gamble and Verizon pay good dividends and have sustainable businesses, but after the financial panic of 2008 and the flash crash this past May, many people are just too fearful to get back in the game.

So I wanted to take a look at a specific investment -- Master limited partnerships -- that typically pays a great dividend and has a history of terrific performance. Master limited partnerships have certain tax advantages that require them to pay significant quarterly distributions to shareholders. The following companies have all earned the highly coveted five-star ranking by our 165,000-strong CAPS community, so let's dig into them a bit further.

 

Industry

Market Capitalization (billions)

Previous Day Close

Kinder Morgan Energy (NYSE: KMP  )

Oil & gas pipelines

$21.1

$69.36

Enterprise Products (NYSE: EPD  )

Independent oil & gas

$24.4

$38.73

Linn Energy (Nasdaq: LINE  )

Independent oil & gas

$4.4

$29.96

Source: CAPS and Yahoo! Finance.

A great quarter
Kinder Morgan, rather than developing and exploring energy reserves, helps transport and store both oil and gas. Kinder recently reported an overall positive second quarter, as it saw a surge in revenue, $1.96 billion for the quarter, and a boost in earnings as well, which topped out at $0.88 per unit. The company has been able to diversify itself well and, accordingly, it has seen success across all five of its business segments; in particular, pipeline earnings went up 10% and the terminal business went up nearly 12%. In addition, shareholders have even more reason to be happy -- quarterly distributions went up 4% versus a year ago, as Kinder now pays $1.09 per unit.

Trouble in the Gulf
Enterprise Products released quarterly results today and beat analyst expectations of $0.44 per unit, coming in at $0.46, a 44% increase from last year's quarter. Last week, the company announced that because of the threat of a tropical storm, it was shutting down several of its offshore Gulf production facilities. Specifically affected would be the West Delta 68 platform, which is a connection point for the Independence Trail pipeline. Independence runs natural gas from Anadarko Petroleum's (NYSE: APC  ) platform, in addition to serving as a hub for Tennessee Gas Pipeline, which is a unit of El Paso (NYSE: EP  ) . The platforms produce 100 million cubic feet of natural gas and 4,000 barrels of oil per day. Although workers were evacuated, Enterprise announced on Sunday that production would resume. However, it could be too early to tell if overall output will be affected. Either way, our CAPS investors seem to love Enterprise's 5.9% dividend, as more than 98% believe the company will outperform the market going forward.

Another high-yielder
Linn Energy sports a stellar dividend of 8.4%. Although the company doesn't announce earnings until Thursday, investors have strong feelings about this oil and gas developer -- more than 97% expect Linn to beat the market. Linn just inked a deal to purchase oil and gas deposits in the Permian Basin for about $90 million. The CEO said of the deal, "This bolt-on acquisition in the Wolfberry trend of the Permian Basin is an attractive addition to our recently acquired assets in this area." Other big players in the Permian Basin include Devon Energy (NYSE: DVN  ) and Occidental Petroleum (NYSE: OXY  ) .

The Foolish bottom line
Year to date, the JPMorgan Alerian MLP Index ETN has shot up by about 16.4%, during a time when the broad index dropped by 2.1%. Do you think these five-star companies mentioned above have what it takes to sustain their high ranking status, or is there nowhere to go but down? Let us know what you think in the comment section below!

Jordan DiPietro owns no shares mentioned above. Enterprise Products and Procter & Gamble are Motley Fool Income Investor choice. The Fool owns shares of Devon Energy and Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 27, 2010, at 10:12 AM, jc09058 wrote:

    My father put me on to Kinder Morgan some years ago and I've been quite happy with this one. Happy enough that I've continued to reinvest dividends into the stock and purchase more. With the fun of the last two years, it has proven to be a wise investment. Seriously looking into other MLPs as a steady base for my portfolio. The greatest plus has been the steady income generated during the recent events.

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