5 Unique Energy Plays For Big Dividend Income
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Widely used in the energy sector is the formation of companies as limited partnerships (L.P.) and master limited partnerships (MLP). The terms are often interchangeable and a stock listed as an L.P. instead of an Inc. or Corp. will have been formed as a publicly traded partnership. As partnerships, these energy companies often pay out a majority of net earnings or cash flow in the form of distributions. These distributions are not officially dividends, but work in a similar manner. Shares of limited partnerships are often referred to as units instead of shares. L.P. distributions have different tax consequences than with regular corporate dividends. The distributions require more paperwork at tax time, but may also provide a higher level of tax-advantaged income. Here are five worth a look.
Western Gas Partners, L.P. (NYSE: WES) Current yield: 4.2 percent. Western Gas Partners was formed in 2008 by Anadarko Petroleum (APC) to hold and manage the company's natural gas gathering and midstream assets. From an initial distribution rate of 30 cents per share quarterly, Western Gas Partners has steadily increased the payout, including the most recent 44 cents to be paid on Feb. 13. The distribution rate has increased at a more rapid pace over the last three quarters, going from 40.5 cents to 42 cents to 44 cents per share. WES has a market cap of $3.7 billion.
Genesis Energy, L.P. (NYSE: GEL) Current yield: 6.1 percent. Genesis Energy offers a unique range of energy related services. The company has a fleet of tanker trucks, barges, crude oil and CO2 pipelines, refinery services and wholesale trade of crude and refined petroleum products. The company's business market is focused along the Gulf Coast from Texas to Florida. The company works on a growth by acquisition basis and avoids exposure to commodity prices. Recent history has the company increasing the distribution rate, sometimes in significant steps. The most recent 44 cent distribution is double the rate paid in the second quarter of 2007. GEL has a market cap of $2.0 billion.
El Paso Pipeline Partners, L.P. (NYSE: EPB) Current yield: 5.6 percent. El Paso Pipeline Partners operates natural gas pipelines and gas storage facilities. The company owns about 13,000 miles of gas pipeline and actively looks for growth through construction or acquisition. The company was an IPO spinoff of the El Paso Corp. (EP) in 2007. The initial quarterly distribution rate of 28.75 cents paid in the second quarter of 2008 has increased each quarter to the most recent 49 cents per share.
Kinder Morgan Energy Partners L.P. (NYSE: KMP) Current yield: 5.4 percent. Kinder Morgan Energy Partners is the largest pipeline transporter of refined petroleum products in the U.S. The company owns 38,000 miles of pipeline and 18 terminals. The company also owns CO2 and natural gas pipelines. The company holds the bulk of the assets of the Kinder Morgan Management (KMR), Kinder Morgan Inc. (KMI) and KMP triumverate. KMP is the high yield choice of the three. The distribution rate has grown steadily since 1993. At some points, the payout stayed level for up to five consecutive quarters and during other periods, the distribution has been increased every quarter.
Copano Energy, LLC. (NASDAQ: CPNO) Current yield: 6.7 percent. Copano Energy is another natural gas midstream services company. Copano offers gas gathering, compression, dehydration, treating, marketing, transportation, processing and fractionation services to its customers in Texas, Oklahoma, Louisiana and Wyoming. Instead of being a master limited partnership, Copano Energy is organized as a limited liability corporation. The major difference is a LLC does not have general partnership units entitled to incentive distributions. The company still issues a K-1 form for tax purposes. The current distribution rate of 57.5 cents per unit has been in effect since the last time the payout was increased for the 2009 first quarter distribution.
The five stocks listed here provide a diversity of ways to earn a high dividend from the energy sector. Investors looking for large cap stability may be interested in Kinder Morgan Energy Partners. Genesis Energy offers some business sectors not usually found in the typical energy company, such as trucking and barge services to transport energy products. The company has an impressive history and the 6.1 percent current yield is a good reason for further research.
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