Investing in MLPs: Three Set to Soar on Shale Expansion

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If you're one of the millions of investors trying to find decent yielding income investments, there's one place you should be looking — Master Limited Partnerships (MLPs).

That's because if you play your cards right you can pocket a cool 6% to 10% or more from investing in MLPs – while the yield on the broad market barely cracks 2%.

As an added bonus, 80% to 90% of distributions from MLPs are tax-free until you sell.

As America's newfound shale formations spew forth million of barrels of oil and gas an infrastructure boom will be needed to store and ship it.

And a few select MLPs will be primed to cash in.

From the Well to the Pump: Investing in Midstream MLPs

Back in 1986, Congress passed a sweeping tax act to speed up the development of domestic energy resources.

The new law created tax-free partnerships to promote investment in "midstream" energy assets–the companies that connect producing fields (upstream) with refineries and retail sales (downstream).

These midstream MLPs profit from the flow of energy, transporting it from place to place with large pipelines and/or storing it in terminals.

Thing is, it doesn't matter whether the price of oil and gas goes up or down — midstreams get a steady stream of profits either way.

"When you invest in the midstream, you're far less susceptible to price fluctuations in the underlying commodity, and you are able to collect easy profits from the growing demand in fuels," explains Money Morning Global Energy Strategist Dr. Kent Moors, who holds many MLPs in his Energy Advantage investment service.

Over the past 10 years, $1,000 invested in the Alerian MLP Index would have grown to nearly $4,500 today with distributions reinvested-an annualized return of 16%.

Meanwhile, a $1,000 investment in the S&P 500 Index with dividends reinvested would have grown to a little more than $2,000 – a return of 7%, not counting taxes that would have been owed.

And now the shale revolution transforming the North American natural gas and oil markets is giving MLPs a wave of new opportunities that should allow them to expand distributions to investors.

You see, the glut of natural gas and oil from vast shale plays like the Bakken and Eagle Ford will require significant investment in infrastructure to transport, refine and distribute what's being extracted from the ground.

In fact, the Interstate Natural Gas Association of America estimates investment in infrastructure in natural gas and oil pipelines will grow by $251 billion over the next 25 years in the U.S. and Canada.

The completion of major pipeline projects to move and store the glut of crude oil and natural gas will be a turning point for the North American energy industry.

Here are three midstream companies with juicy yields that will be on the leading edge of the boom.

Investing in Master Limited Partnerships (MLPs): Three to Buy Now

Enbridge Energy Partners, L.P. (NYSE: EEP); Market Cap: $8.4 billion; Dividend yield: 7.7%: EEP owns and operates 11,500 natural gas transportation lines, approximately 6,500 miles of crude oil transportation lines and 32 million barrels of storage capacity.

But EEP will be a growth machine in 2013 as it unleashes a game-changing pipeline expansion program.

The Seaway Pipeline will be completed this year to reverse the flow of crude oil from the bottlenecked Cushing, OK hub to the vast refinery complex along the Gulf Coast.

A twin line is planned for 2014 that will quadruple overall capacity to 850,000 barrels per day (bpd).

Another $6.2 billion project aims to move crude from the Canadian oil sands and the Bakken to refineries in the United States, adding 400,000 bpd by 2016.

Plains All American Pipeline LP (NYSE: PAA); Market cap: $12 billion; Dividend yield: 5.2%: PAA is a major owner of energy infrastructure putting them in good shape to handle increased natural gas production as well.

PAA can store 71 million barrels of crude oil, has storage capacity for 9 million barrels of NGL and 90 billion cubic feet of natural gas.

Plains plans to spend $1.1 billion on new storage projects and pipeline expansion in 2013.
Volumes will increase by 17 million barrels of oil per month over 2012, thanks to new infrastructure projects and recent acquisitions.

After posting blowout fourth-quarter results, Plains increased fourth-quarter distributions by 9.8% over last year and announced it will increase its 2013 distribution growth by 9%-10%.

Energy Transfer Partners (NYSE: ETP); Market cap: $14 billion; Dividend yield: 7.5%: ETP currently has natural gas operations that include approximately 24,000 miles of gathering and transportation pipelines and storage facilities.

ETP also owns NGL storage, transportation assets in Texas, Louisiana and Mississippi. In October 2012, ETP bought Sunoco, Inc., gaining control of Sunoco's 7,900 miles of crude-oil and refined-fuel pipelines, giving it a toehold in the Marcellus and Utica Shale regions in Pennsylvania and Ohio.

ETP just announced plans with Enbridge to build a 700-mile pipeline to the eastern Gulf Coast refinery market from Patoka, Illinois, the largest refining center in the world with approximately nine million bpd of processing capacity.

Here's how you can learn more info on how to seize MLP profits and get up-to-date energy investing news from Dr. Kent Moors.

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  1. Walter Baltzley | February 22, 2013

    Unfortunately, with the invention of Chemical MICRO-REACTOR Plants, we may see the "midstream" disappear. Micro-Reactors are to chemistry what the micro-processor was to computing. The technology is currently being deployed in the Pharmaceutical industry, and by the military for producing explosives.

    Micro-Reactor plants can shrink a chemical plant from millions of square feet down to the size of a tractor-trailer…allowing oil to be refined ON-SITE or IN-TRANSIT rather than shipped to a separate location. Within ten years, this could mean the END of the "midstream" investments being touted here.

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