Collect Big Distributions from These 3 Oil and Gas MLPs

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Oil and gas Master Limited Partnerships are excellent income-producing investments.  These companies operate storage facilities and pipelines, which they use to hold and transport oil, gas, and refined products.  Customers of these products include major oil companies, energy producers and shippers, local distribution companies and businesses across many industries.  I tend to think of these types of MLPs as toll roads.  Oil and gas MLPs that operate tanks and pipelines collect fees based on the volumes they store and transport.  As a result, these MLPs aren’t nearly as vulnerable to the volatile swings of the oil market as traditional oil companies.  Here are three MLPs in the oil and gas space that have reliable growth in profits and distributions to unitholders:

Enterprise Product Partners (NYSE: EPD) has a market capitalization of over $48 billion.  Since first going public in 1998, Enterprise Products has grown steadily, increasing its asset base from $715 million to $34 billion as of June 2012.  The company boasts over 50,000 miles of natural gas and crude oil pipelines.  In addition, Enterprise Product Partners has immense storage facilities with 190 million barrels of natural gas liquids, refined products and crude oil storage capacity and 14 billion cubic feet of natural gas storage capacity.  Enterprise’s massive operations have allowed it to pay a continually increasing stream of distributions to unitholders.  Earlier this month, Enterprise Products raised its first quarter 2013 distribution by more than 6% year over year.  The increase marks the 43rd increase since its 1998 initial public offering.  The annualized distribution of $2.64 presents new investors a beginning yield of nearly 5%.

Kinder Morgan Partners (NYSE: KMP) is a $32 billion partnership with a current yield of over 5.5%.  Kinder Morgan has raised its quarterly distribution ten times since 2010, and has a five-year compound annual growth rate of nearly 7.5%.  Kinder Morgan operates 75,000 miles of pipelines and 180 terminals.   The company’s pipelines transport products including natural gas, refined petroleum products, and crude oil.  KMP started 2012 very well, with revenue during the first nine months of the year up 3% versus 2011.  Kinder Morgan has had a great run over the last two years, with its units rising in price from the mid-sixties in late 2011 to its current level of over $85.

Magellan Midstream Partners (NYSE: MMP) also operates in the storage and transportation of petroleum products.  Magellan is a smaller Master Limited Partnership with a roughly $10 billion market value.  Magellan has increased its quarterly distribution for 11 quarters in a row, and now yields over 4% at current prices.  The company’s storage capacity is impressive:  Magellan can tap into more than 40% of the nation’s refining capacity and store over 75 million barrels of petroleum products such as gasoline, diesel fuel and crude oil.  In addition, Magellan boasts a 9,600 mile petroleum pipeline system.

Master Limited Partnerships might be a great consideration for an investor wary of putting money into markets nearing their all-time highs.  With short-term interest rates at historic lows, traditional fixed income products like certificates of deposit pay almost nothing.  The ten year U.S. Treasury Bond currently sits at 1.8%.  As a result, MLPs provide investors with both satisfying current yields, as well as inflation-beating distribution growth.


rciura has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners L.P. and Magellan Midstream 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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