 | MARKET CONDITIONS As I mentioned in earlier postings that the market would hiccup and may continue to do so until about the end of July. These "mini corrections" present opportunities in multiple industries. It certainly enables us to get into certain target positions cheaper particularly our MLP picks. |
The stock market is down about 2% since last week. This usually worries most investors. But it shouldn't.
It's a good thing when the market takes a breather. When stocks go up and up without a pause, they'll eventually crash hard. The more small corrections you get along the way, the better it'll be over the long term.
We like to see corporate management buying back shares and increasing shareholder value, not issuing new ones. But with master limited partnerships (MLPs), it's a different story. When MLPs issue more units, it means they are gearing up to fund new growth projects.
Three of our targeted master limited partnerships (MLPs) are either currently raising capital or getting ready to. Energy producer Vanguard Natural Resources (NYSE: VNR) sold 8,050,000 new common units at $28.35 each. Natural gas liquids producer Williams Partners (NYSE: WPZ) just filed to sell up to $600 million of new common units and pipeline operator Energy Transfer Partners (NYSE: ETP) filed to sell up to $800 million of new common units.
We don't know which capital-raising efforts are for which internal projects. But we know that VNR, WPZ, and ETP all have new growth projects planned and underway. Regular equity and debt issuances are normal for thriving, healthy MLPs. It's one way we know their growth plans are on track and ready for funding. I'll provide more updates on future growth projects for these MLPs as information is released.
Another pipeline operator ONEOK Partners (NYSE: OKS) gave a 97-slide presentation at the Wells Fargo "Kick the Tires" financial conference yesterday in Houston. The presentation was about OKS and its parent company and general partner, ONEOK (OKE). Based in Tulsa, Oklahoma, OKS specializes in three related businesses: natural gas gathering and processing, natural gas pipelines, and NGLs. It's one of the biggest U.S. companies in all three businesses.
Since January, we expected the company to continue growing its dividend at an annual rate of 8% or more for the next couple years and that is due to the expanding energy boom in the U.S., we could expect several growth projects from the company over the next few years. According to yesterday's presentation, OKS is painting a similar picture. Here are some highlights from the presentation.
ONEOK Partners is seen as ONEOK's primary source of growth. OKS has announced about $5 billion of growth projects for the period 2011-2015. About $2 billion are completed. In the end, the company will spend about $2.6 billion in the Williston Basin in Bushton, Kansas (mostly on gas processing), about $1 billion in NGL "capital" Mont Belvieu, Texas and about $1.4 billion in the region between Kansas and Mont Belvieu (mostly on NGL pipelines and processing).
ONEOK also said in the presentation that it has $2 billion in new growth projects it has not announced yet. They're all in natural gas pipelines and processing, NGL processing and storage, and crude oil transportation (rail loading facilities and pipelines). ONEOK Partners generates primarily fee-based income. That means its earnings won't fluctuate up and down with the price of the energy commodities it transports and processes. That makes it a stable source of income for investors. ONEOK Partners expects to generate 68% of its gross profit from fee-based sources this year.
Right now, OKS yields 5.5%. But all that growth should drive 8%-12% cash distribution growth over the next couple of years. The advice on ONEOK Partners remains unchanged.
BUY ONEOK Partners (NYSE: OKS) up to $57 a share.
INVESTOR TIP
The general partner (GP) gets the lion's share of growth from the limited partner (LP). Many MLPs today get less than half the growth, because so much goes to the GP. That just means the GP gets a percentage up to 50% of the distributable cash from the MLP. Distributions to the GP tend to rise faster than those to the MLP unitholders. It's like that so the GP has an incentive to grow the MLP's distributions.
The only reason to buy the MLP over the GP is because the MLP delivers higher current income. If I recommended the GP, I'd get a million e-mails asking why I don't recommend the higher-yielding LP units. But insisting on high current income naturally increases the amount of risk you take.
That's why we only concentrate on the safest MLPs, so we can keep the risk down to a minimum. We only pick MLPs that cover their cash distributions well and don't take on too much debt. We also don't pick MLPs that get too much of their revenue from businesses that are sensitive to changes in commodity prices. That keeps us safe and keeps risk down to a minimum.
Take ETP for example. It's dividend reinvestment plan (DRIP) reinvests shares at a 5% discount to current price. Over time, that 5% discount gives you the chance to buy an additional 5% more shares which gives you the opportunity to make even more money because those extra shares' dividends will buy more new shares.
Example: Say you buy 21 shares of a stock instead of 20 shares. Over time, that extra 5% will tend to push your rate of compounding up 5%. So instead of compounding at, for example, 10% a year, you might compound at 10.5% a year. After 20 years, a $10,000 investment would be worth about $67,000 at 10% a year and about $73,000 at 10.5% a year.
Remember, never put more than 5% of your portfolio in any one dividend grower or more than 3% in any other stock.
It's a good thing when the market takes a breather. When stocks go up and up without a pause, they'll eventually crash hard. The more small corrections you get along the way, the better it'll be over the long term.
We like to see corporate management buying back shares and increasing shareholder value, not issuing new ones. But with master limited partnerships (MLPs), it's a different story. When MLPs issue more units, it means they are gearing up to fund new growth projects.
Three of our targeted master limited partnerships (MLPs) are either currently raising capital or getting ready to. Energy producer Vanguard Natural Resources (NYSE: VNR) sold 8,050,000 new common units at $28.35 each. Natural gas liquids producer Williams Partners (NYSE: WPZ) just filed to sell up to $600 million of new common units and pipeline operator Energy Transfer Partners (NYSE: ETP) filed to sell up to $800 million of new common units.
We don't know which capital-raising efforts are for which internal projects. But we know that VNR, WPZ, and ETP all have new growth projects planned and underway. Regular equity and debt issuances are normal for thriving, healthy MLPs. It's one way we know their growth plans are on track and ready for funding. I'll provide more updates on future growth projects for these MLPs as information is released.
Another pipeline operator ONEOK Partners (NYSE: OKS) gave a 97-slide presentation at the Wells Fargo "Kick the Tires" financial conference yesterday in Houston. The presentation was about OKS and its parent company and general partner, ONEOK (OKE). Based in Tulsa, Oklahoma, OKS specializes in three related businesses: natural gas gathering and processing, natural gas pipelines, and NGLs. It's one of the biggest U.S. companies in all three businesses.
Since January, we expected the company to continue growing its dividend at an annual rate of 8% or more for the next couple years and that is due to the expanding energy boom in the U.S., we could expect several growth projects from the company over the next few years. According to yesterday's presentation, OKS is painting a similar picture. Here are some highlights from the presentation.
ONEOK Partners is seen as ONEOK's primary source of growth. OKS has announced about $5 billion of growth projects for the period 2011-2015. About $2 billion are completed. In the end, the company will spend about $2.6 billion in the Williston Basin in Bushton, Kansas (mostly on gas processing), about $1 billion in NGL "capital" Mont Belvieu, Texas and about $1.4 billion in the region between Kansas and Mont Belvieu (mostly on NGL pipelines and processing).
ONEOK also said in the presentation that it has $2 billion in new growth projects it has not announced yet. They're all in natural gas pipelines and processing, NGL processing and storage, and crude oil transportation (rail loading facilities and pipelines). ONEOK Partners generates primarily fee-based income. That means its earnings won't fluctuate up and down with the price of the energy commodities it transports and processes. That makes it a stable source of income for investors. ONEOK Partners expects to generate 68% of its gross profit from fee-based sources this year.
Right now, OKS yields 5.5%. But all that growth should drive 8%-12% cash distribution growth over the next couple of years. The advice on ONEOK Partners remains unchanged.
BUY ONEOK Partners (NYSE: OKS) up to $57 a share.
INVESTOR TIP
The general partner (GP) gets the lion's share of growth from the limited partner (LP). Many MLPs today get less than half the growth, because so much goes to the GP. That just means the GP gets a percentage up to 50% of the distributable cash from the MLP. Distributions to the GP tend to rise faster than those to the MLP unitholders. It's like that so the GP has an incentive to grow the MLP's distributions.
The only reason to buy the MLP over the GP is because the MLP delivers higher current income. If I recommended the GP, I'd get a million e-mails asking why I don't recommend the higher-yielding LP units. But insisting on high current income naturally increases the amount of risk you take.
That's why we only concentrate on the safest MLPs, so we can keep the risk down to a minimum. We only pick MLPs that cover their cash distributions well and don't take on too much debt. We also don't pick MLPs that get too much of their revenue from businesses that are sensitive to changes in commodity prices. That keeps us safe and keeps risk down to a minimum.
Take ETP for example. It's dividend reinvestment plan (DRIP) reinvests shares at a 5% discount to current price. Over time, that 5% discount gives you the chance to buy an additional 5% more shares which gives you the opportunity to make even more money because those extra shares' dividends will buy more new shares.
Example: Say you buy 21 shares of a stock instead of 20 shares. Over time, that extra 5% will tend to push your rate of compounding up 5%. So instead of compounding at, for example, 10% a year, you might compound at 10.5% a year. After 20 years, a $10,000 investment would be worth about $67,000 at 10% a year and about $73,000 at 10.5% a year.
Remember, never put more than 5% of your portfolio in any one dividend grower or more than 3% in any other stock.
RSS Feed
