5 MLPs With High Yields and Low PE Ratios
Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Oil and gas MLPs offer high yields and an interesting tax structure but do they provide good value? The MLPs listed below have some of the lowest PE ratios in the industry and they all have dividend rates over 7%. The differing debt ratios and returns on invested capital show that there is definitely variation within the industry. Going beyond simple PE ratios and yield rates develops a clearer understanding of these companies and shows that not all MLPs are created equal.
Price to Earnings Ratio and Yield Rates
|Pioneer Southwest Energy (NYSE: PSE)||7.8||5.68|
|BreitBurn Energy Partners L.P. (NASDAQ: BBEP)||9.2||6.55|
|Legacy Reserves LP (NASDAQ: LGCY)||7.7||8.63|
|QR Energy LP (NYSE: QRE)||9.6||9.80|
|Eagle Rock Energy Partners, L.P. (NASDAQ: EROC)||8.6||14.84|
Pioneer Southwest Energy (NYSE: PSE) has the lowest PE ratio of the group. It has interests in a number of wells throughout Texas and New Mexico. The historical dividend growth rate is not as high as other companies. Regardless, the low PE ratio of 5.68, high return on invested capital of 59.1%, and low debt to equity ratio of .25 paint the company in a positive light. There is a trade off in this MLP as those looking for a low PE ratio will have to live with low growth prospects given the 3 year dividend growth rate of 2.35%. Future growth prospects are not spectacular and some analysts are starting to take a conservative approach.
BreitBurn Energy Partners L.P. (NASDAQ: BBEP) has one of the highest yield rates at 9.2% but one of the lowest rates of return on invested capital at 9.5%. The 3 year dividend growth rate of 24.12% is much higher than the rate posted by PSE but there is still cause for concern. In 2009 BBEP was forced to halt distributions in order to pay down debt. The fact that management allowed the company to reach such a situation is rather disheartening and this event helps to explain by the market is pricing the company with at a price to tangible book value ratio of .933 and a low price to earnings ratio of 6.55. Couple with the relatively low rate of return on invested capital this MLP has some inherent risks which make the company one of the most risky options.
Legacy Reserves LP (NASDAQ: LGCY) has the lowest yield of the group but offers solid returns and growth. Their dividend growth rate over the past 5 years is a strong 21% while the 3 year rate is a more realistic 1.34%. The 5 year revenue growth rate of 27.49% shows that dividend growth is sustainable. The high dividend growth coupled the high return on invested capital of 18.62% explains why the market has pushed the yield down to 7.7%. Those looking for a solid company with growing real dividends will find this MLP to be one of the better options.
QR Energy LP (NYSE: QRE) has a high debt to equity ratio of .944 which makes their high yield of 9.6% less attractive. The company recently had their IPO so the 1 year dividend growth rate of 1.95% is the only historical dividend growth rate which can analyzed. Given its high yield the MLP is definitely popular, but some analysts are starting to question the firm's future ability to grow distributions. The low cost nature of the firms assets and healthy return on invested capital of 11.54% decrease the over all risk. The firm's assets are found through the American South and Michigan. As others have pointed out the firm takes a very conservative approach with their hedging operation. Given the strong hedging portfolio, healthy return on invested capital, and high yield this company deserves a second look.
Eagle Rock Energy Partners, L.P. (NASDAQ: EROC) has posted strong growth over the past year with 39.8% revenue growth. Recently they announced a new development in Lousianna which will allow them gather an process and additional 800,000 acres. The low return on invested capital of 4.67% is rather concerning, but the debt to equity ratio of .887 is not outrageous. Given the recent revenue growth and encouraging news the firm's high price to earnings ratio of 14.84 appears to be some what justifiable. This MLP may be a solid opportunity, but it does not offer the long term history of dividend growth or return on invested capital as LGCY. This MLP is more of a growth story and a good opportunity for the less risk adverse.
High yields and price to earnings ratios should not be taken blindly. Though BBEP has a yield of 9.2% an a price to earnings ratio of 8.63 LGCY may be the better option. LGCY has a higher return on invested capital of 18.62% and stronger 5 year dividend growth rate of 21.00%. Everyone's investment situation is different but the peace of mind given by LGCY's stronger fundamental's makes their lower yield of 7.7% more attractive. MLPs are a great way to boost a income portfolio but it is dangerous to blindly chase yield without looking at the underlying business.
MrCanadian1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.