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Eagle Rock Energy Partners, L.P. Message Board

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  • ruby.thedyke ruby.thedyke Aug 16, 2012 10:54 AM Flag

    What is a better buy at this time

    For yield there's no question, because of history, and amped up expectations that MWE's capex splurge will pay off big, EROC trades at a much higher yield. But when you're buying an MLP you're looking for continuity of cash flow, and for that MWE is safer than EROC not only based on past performance, but on its existing capital base.

    That said, don't expect MWE to pay substantially higher distributions, even if their cash flow was to double. They'll use that excess coverage to expand, not to enrich legacy unit holders, it's just what business does, grow. So don't buy MWE thinking you're getting 5% now, but two years from now it will yielding 10% on your cost, because that (probably) won't happen. Nor will MWE units go up that much in price, they'll use bumps in the market price for offerings. It was $60 recently, they smashed that with offerings, it dropped to $50 (in part due to NGL weakness), rose a bit and they clobbered it again with another offering.

    In that light, I like EROC, it's cheap. It's not as safe, so I wouldn't go whole hog here. I believe one should spread your MLP money around, there are several excellent investments, particularly VNR, the massively hedged LINE and so forth. Buy a basket of them and you'll sleep better.

 
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