Diversified midstream energy operator Genesis Energy L.P. (GEL) raised its first quarter 2013 cash distribution to 49.75 cents per unit ($1.99 per unit annualized), representing an increase of approximately 2.6% sequentially and 10.6% year over year. Importantly, the latest payout marks the 31st consecutive quarterly distribution hike by the pipeline operator, of which 26 increases have been 10% or more year over year.
Genesis Energy’s announced distribution boost is in sync with its goal of delivering disciplined growth to unitholders. The partnership boasts of a consistent and improving financial policy with high distribution coverage. Genesis Energy’s new distribution is payable on May 15 to unitholders of record as on May 1, 2013.
Houston, Texas-based Genesis Energy is a master limited partnership that operates crude oil pipelines and is an independent gatherer and marketer of crude oil in North America, with operations concentrated in Texas, Louisiana, Alabama, Florida, Mississippi and New Mexico. Genesis Energy engages in three business segments: Pipeline Transportation, Refinery Services, and Supply and Logistics.
With a juicy distribution yield of 4.3%, a business model focused on operational efficiencies and attractive acquisitions/growth projects, Genesis Energy provides investors with a steady, predictable income stream.
However, valuation looks expensive for Genesis Energy. In particular, the partnership has a price-to-book (P/B) ratio of 4.1, which suggests that the stock is overvalued. (A P/B ratio under 3.0 generally indicates value.)
As a result, Genesis Energy – which acquired interests in Gulf of Mexico oil pipelines from Marathon Oil Corp. (MRO) in Jan last year – currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at EPL Oil & Gas Inc. (EPL) and Range Resources Corp. (RRC) as good buying opportunities. These domestic oil and natural gas explorers – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.
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