These 3 MLPs Should Improve Your Returns
Emmanuel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you are thinking of investing in 10-year or 20-year U.S. Treasuries, then think twice. There are other investing opportunities that offer way much higher yields than the current yields of the U.S. Treasuries. The average yield of a 10-year U.S. Treasury note is 2.50%; or 2.52% as of July 17. On the other hand, a 20-year Treasury will give you a higher yield of 3.27% per unit.
However, if you invest your money in high-yielding stocks, you can earn much higher from dividends alone. This is on top of the capital appreciation you might enjoy.
Among the best stocks for dividend investing are Master Limited Partnerships. The good thing about investing in MLPs is that there are numerous ways of earning. You can earn from the stock price appreciation and from dividends. On top of that, you can avail of a sort of tax shield at the same time.
Master Limited Partners normally pay higher dividends compared to the rest; usually about 5% or higher, which is twice or even higher than the average yield of bonds and treasuries. If this sounds good to you, then take a quick look at three of the best-performing MLPs for dividend investing.
A high-yielding MLP with robust growth
Buckeye Partners (NYSE: BPL) is a large cap company with a market capitalization of $7.52 billion. The firm operates and owns one of the largest pipeline networks in the U.S. that transport refined petroleum products. It also offers storage, distribution, and terminalling services of refined products. The company has an aggregate capacity of storing more than 64 million barrels in more than 100 terminals. The stock currently trades at a trailing P/E ratio of 26.91 times. Its current yield is quite attractive at 5.89%.
Investing in Buckeye Partners will give you an earnings assurance from the annualized dividend amounting to $4.20 per share. The amount has been increased year-over-year since 2000. Buckeye Partners has a healthy financial profile based on its Q1 2013 quarterly report, posting 6% higher revenue over the same quarter a year ago at $1.34 billion.
Net income was also up 68% over the same period. The company has a profit margin of 5.94%, while the return on equity is 10.13%. But, what's most impressive about Buckeye Partners is its relatively high share price appreciation, already gaining a stunning 54% year-to-date.
Buckeye Partners has many growth opportunities to sustain its momentum amid rising crude oil production in the U.S. and an increase in tariff rate to 7% since May 1, 2013. It recently acquired the Perth Amboy terminal in New York from Chevron. This will add more than 4 million barrels of tankage and 4 docks to its asset portfolio. The Perth Amboy terminal will strategically link its inland pipelines to its BORCO facility.
Buckeye also plans to infuse about $100 million or more for the improvement of the Perth Amboy terminal that includes connecting it to the Linden complex nearby. This is projected to be in operation by April 2014. This will be another growth catalyst of Buckeye, on top of its increased drilling activities in the Utica and the Marcellus basins.
High-yielding MLP with healthy financials
Also on the radar for high-yielding MLPs is AllianceBernstein Holding (NYSE: AB). This is a mid-cap company with reasonable market capitalization of $2.16 billion. This is a global asset management company that is research-driven and client-centered. The stock presently trades at 32.91x trailing P/E ratio.
When it comes to financial stability, the company is strong with 77.21% profit margin and 100% operating margin. But, the return on equity is rather minimal at only 3.82%; still, this is higher than the current yield of a 10-year Treasury note. This year, shares of AllianceBernstein Holding have appreciated 17.57%. This is on top of the current yield, which is a bit higher than Buckeye Partners, at 7.45%.
On June 26, Standard & Poor's upgraded the rating of AllianceBernstein Holding from negative to stable, based on the positive net flows for this year. On July 12, in line with the company’s ongoing efforts to expand its alternative investment offerings, AllianceBernstein Holding announced the platform expansion of its real estate group by launching its first-ever commercial real estate debt fund. This will help the company in capturing yield opportunities to sustain its growth.
Higher yield with robust stock appreciation
Another attractive MLP for dividend investing is AmeriGas Partners (NYSE: APU). This is a propane firm serving more than 200 million industrial, commercial, agricultural, and residential customers. It has a nationwide footprint across 50 states, and it is in the industry since 1959.
AmeriGas Partners is a good dividend payer with an annual yield of 7.24%. It is relatively stable with sufficient market capitalization of $4.32 billion. The firm reported quarterly revenue growth of 1.80% year-over-year. Its earnings growth is even more impressive at 59.20% year-over-year. The reported ROE was 8.49% with profit margin of 4.61%. Year-to-date, shares have jump 20.79%. This is more than five times higher than the 20-year yield of U.S.Treasuries.
AmeriGas Partners acquired the Heritage Propane operation from Energy Transfer Partners in January 2013. It is currently working on the integration of Heritage Propane, and is on track to complete the integration before this year ends. This is expected to alleviate the standard of excellence in the U.S. propane distribution industry, and the deployment of new technologies is expected to potentially grow the business of AmeriGas Partners.
The bottom line
Although the above high-yielding stocks have outperformed the yields of bonds and treasury notes, the risk is also higher. Shares of MLPs rapidly fluctuate compared to the smaller fluctuations in treasuries and bonds. In order to minimize the risk, don’t put all your investments in one basket. Instead, diversify them into different investment channels.
You can invest in two or more high-yielding MLPs, while securing some positions in bonds and treasuries. The above stocks are among the best options where you can outperform your potential earnings in long-term, low-yielding but relatively stable investments like bonds. While there are risks, the rewards are also worth the risks.
Dividend stocks will make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of the only nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.
Emmanuel Floriann Magto has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!