We've been covering how companies that export liquefied natural gas are a good buy today - but investors can double their profits by also investing in the industry's shipping sector with Teekay LNG stock.
Teekay LNG Partners L.P. (NYSE: TGP) is a master limited partnership formed by Teekay Corp. (NYSE: TK) as part of its strategy to expand operations in the LNG sector.
Teekay LNG is the third-biggest independent owner of LNG carriers in the world. The company owns 67 vessels in total, 29 of which are LNG carriers.
Most of Teekay's contracts are fixed-rate, long-term contracts, about 10 to 25 years in length. This provides the company with stable long-term cash flows that let it avoid any future issues of overcapacity.
But Teekay is better positioned than its competitors to profit from LNG shipping, thanks to this development in the Panama Canal...
Panama Canal Expansion Bullish for LNG Shipping
A $5.25 billion Panama Canal expansion began in 2007 and is now about two-thirds complete.
Currently, the Panama Canal can handle ships 965 feet long and 106 feet wide. The expanded canal will be able to accommodate ships as long as 1,200 feet and as wide as 160 feet.
Estimates are that, starting in 2016, the expanded Canal will handle 12 million metric tons of liquefied natural gas annually.
"The Panama Canal widening will improve the competitive position of LNG exports from the U.S. Gulf Coast," Cheniere's Diane Haggard told Bloomberg.
Silvia Marucci, liquid bulk specialist for the Panama Canal Authority, told a conference in Singapore that the trip times from the Sabine Pass facility in Louisiana owned by Cheniere Energy (NYSE MKT: LNG) to Japan will be cut to only 43.4 days from the current 63.6 days. Shorter transport times will make the final costs of LNG cheaper to Asian buyers.
Due to this perfectly timed planning, Teekay LNG Partners is the LNG transport operation in the best position to take advantage of the Panama Canal...
Teekay LNG contracted with Daewoo Shipbuilding & Marine Engineering to build four 173,400 cubic meter LNG carriers - ships ideally suited to traverse the Panama Canal once it's expanded. The contract with Daewoo stipulated that another five vessels may be built.
Teekay LNG CEO Peter Evensen stated, "The delivery of the vessels is timed to coincide with the next wave of increased demand for LNG carriers which is expected when a large number of new LNG export projects come on-stream commencing from late-2015. They are also among the largest LNG carriers that will be able to transit the Panama Canal after its expansion project is complete, which makes them ideal for U.S. LNG exports."
Teekay LNG already announced in June 2013 that it signed five-year contracts with Cheniere for the first two ships being built to transport LNG from the Sabine Pass facility.
Wise management isn't the only reason to invest in Teekay LNG stock...
Investing in Teekay LNG Stock (TGP)
With TGP being a limited partnership, it has an attractive yield of 6.76%.
The distribution rate looks to be well supported. Since its IPO in 2005, TPG has increased its cash distribution every year on average by 7%.
In fact, the company recently raised its payout again. For the quarter ended Dec. 31, 2013, it will pay a cash distribution of $0.6918 per unit. That is an increase of 2.5% from the previous quarter.
The stock price was little changed in 2013. This offers investors an opportunity to buy a stock that still offers good value while enjoying a nice yield.
Check out this LNG stock chart for three energy stocks that are far outperforming the S&P 500.
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