One MLP You Should Have In Your Portfolio
The Dynamic Wealth Report
June 3, 2009
A Simple Way To Profit From Commodities
This weekend I was in Flagstaff for a horse show. The weather was
beautiful, and a little chilly. When we got to the stables Sunday
morning, the temperature was 44 degrees. I guess I should’ve brought a
jacket! It was a nice departure from the heat wave hitting Phoenix.
Early Sunday afternoon we started the 2+ hour drive back to the valley.
Towing the horses makes the drive a bit slow. Linda was driving. It gave
me time to stare out the window and contemplate the landscape speeding
by. We were descending into Black Canyon City when I noticed something
strange.
A huge scar was cut across the beautiful desert.
For miles, a hundred foot swath of desert had been stripped from the
earth. It was a massive undertaking. All of the vegetation was gone.
Only a bare strip of brown dirt remained.
Linda knew immediately what it was…
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A new high pressure natural gas line had been installed. It took crews
months to dig the trench, lay the pipeline, and cover everything back
up. I was sad to see the destruction this process created. But, it’s
amazing to think in just a year or two Mother Nature will reclaim the
dirt. In time, nobody will know the pipeline’s even there.
Even more amazing is the massive undertaking an installation of this
type requires. Just think of the engineering, logistics, permitting, and
other challenges.
It was one of those cartoon moments. Sitting in the car, a giant light
bulb over my head flipped on. I had an investment idea…
When I got home, I rushed to the computer and spent several hours
researching a very specific type of company. I was focusing on companies
that own natural gas pipelines. What I found was a great business with
amazing profit margins, limited competition, and eye popping dividends
(they call ‘em distributions).
The majority of companies owning natural gas pipelines are MLPs.
If you don’t know, MLP stands for Master Limited Partnership. It’s an
investment vehicle for purchasing energy related assets… like pipelines.
The businesses run the assets and distribute most of the profits. Here’s
the cool part… most of the distributions are tax free.
There’s one MLP in particular that I like.
Believe it or not, it’s the same company installing the pipeline I
noticed on my drive from Flagstaff.
Who am I talking about?
Energy Transfer Partners (ETP). The company is a publicly traded
partnership. They own and operate various pipelines throughout the
American southwest including the states of Arizona, Colorado, Louisiana
(not really the southwest), New Mexico, and Utah. They own more than
17,500 miles of pipeline.
But, pipelines aren’t their only business. They also own a natural gas
processing plant and three storage facilities in Texas. ETP also sells
propane to more than one million retail customers.
It’s an amazing business.
Their latest report in May covers the first quarter of the year. In just
three months time, they generated $1.6 billion in revenue and $300
million in net income. Now revenue is down from the prior year, but
earnings are remarkably stable.
With natural gas prices leveling off, the company will no doubt see
performance stabilize and growth resume.
But that’s just scratching the surface. Take a look at the balance
sheet. The company has more than $10 billion in assets and just over $5
billion in long term liabilities. As an MLP, they’re required to pay out
earnings as a distribution to owners.
This year the company’s on track to payout more than $3.57 per share to
owners… right now that’s a yield of more than 8%!
If you’re looking to add income to your portfolio, take a hard look at
ETP. They deliver a needed service and their assets give them a near
monopoly. Despite one of the worst economic environments in decades,
they’ve maintained profitability levels. ETP’s distributions are income
I believe you can count on in good times and in bad.
It looks like a great opportunity to me!
• Soybeans (Over $12 a bushel)
Soybeans continue to move higher, reaching an eight month high just
yesterday. Concerns over the number of US acres planted pushed prices
higher. The delay might compromise yield, which will also keep prices up.
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