One of the reasons I love high-yielding stocks is that dividends (or distributions in the case of MLPs) offer investors immense flexibility when it comes to building long-term wealth. For example, a younger investor can take the income and reinvest it into more shares/units and compound the returns. In a financial pinch, the income stream can be tapped to help pay bills, rather than the investor being forced to sell shares/units. Upon reaching retirement that same income stream can be used to pay bills and, if the investment is chosen correctly, prevent inflation from decreasing purchasing power over time.
All of these benefits are magnified when a company pays a monthly dividend or distribution, and this article highlights two undervalued oil producers with not only safe and sustainable double-digit yields, but with strong growth prospects that promise steady distribution growth going forward.
Breitburn Energy Partners (NASDAQOTH:BBEPQ) is one of my favorite oil-producing MLPs. In my last article about the company, I explained the reason why the distribution coverage ratio temporarily dipped to 0.93 and predicted that the company's latest acquisition would cause distributable cash flow, which pays the distribution to soar. Well, management didn't disappoint and reported a record, blowout quarter.
- Adjusted EBITDA up 84%
- DCF up 88%
- Distribution coverage ratio 1.0
Upstream MLPs are one of the best ways for income investors to earn strong, safe monthly income. Breitburn Energy and QRE Energy are two of the best choices in the sector and currently trade for deep discounts to the value of their oil reserves (called the standardized measure). Both partnerships possess strong growth catalysts that promise consistent distribution growth in the future, which will likely lead to long-term market-beating total returns.
Adam Galas has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.