With the third-quarter earnings season nearing a close, the MLP analysts at Deutsche Bank have released a new research report tabulating the data. In the report they summarize some of the significant trends shown in the quarterly reporting that point to an improved outlook for the natural gas and master limited partnership (MLP) sectors. Good news for investors.
Specifically, they noted in the report that the annualized rate of dividend growth among the natural gas companies rose from about 12% earlier this year to a level of 13.9%, based on the increases announced with the third-quarter earnings. The MLPs' annualized rate of distribution growth rose from 7.0% to 8.7%. The increase in payouts is a classic sign to shareholders that operations are proceeding smoothly and earnings are growing. Here are the top MLP names to buy at Deutsche Bank.
Enterprise Products Partners L.P. (EPD) remains at the top of the Deutsche Bank list of stocks to buy. The company recently priced an 8 million share secondary offering at $62.05 per share. Trading below that offering price offers investors a timely entry point. The Deutsche price target for the stock is $70. The Thomson/First Call estimate is at $69.50. Investors are paid a 4.5% distribution. It is important to remember MLP distribution may contain return of principal. The stock closed Monday at $61.57.
Energy Transfer Partners L.P. (ETP) reported solid third-quarter earnings last week. The company is successfully digesting an enormous amount of merger and acquisition (M&A) activity. In addition to getting a handle on a stable of new assets, significant rationalization and restructuring has been ongoing. Investors are paid a 6.9% distribution. Deutsche Bank has a $60 price target for the stock, and the consensus target is at $57. The stock closed Monday at $52.27.
Kinder Morgan Energy Partners L.P. (KMP) also remains high on the list of top stocks to buy. The company is a leading pipeline transportation and energy storage company and one of the largest publicly traded pipeline limited partnerships in America. It owns an interest in or operates approximately 54,000 miles of pipelines and 180 terminals. Investors receive a solid 6.7% distribution. The Deutsche Bank price objective for the stock is $102, which is the highest on Wall Street. The consensus price target is posted at $91. Kinder Morgan closed Monday at $80.43.
Plains All American Pipeline L.P. (PAA) also reported outstanding earnings last week. Total revenues at the end of the third quarter were $10.7 billion, versus $9.4 billion in the year-ago period, reflecting growth of 13.8%. All three company segments performed well with the major upside coming from the 14.8% growth in the Supply & Logistics segment. Investors receive a 4.7% distribution. Deutsche Bank has a $66 target for this Wall Street favorite. The consensus price objective is $61.Plains closed Monday at $50.81.
Western Gas Partners L.P. (WES) was formed by Anadarko Petroleum Corp. (APC) to own, operate, acquire and develop midstream energy assets. With midstream assets in East, West and South Texas, the Rocky Mountains, north-central Pennsylvania and the Mid-Continent, WES is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, natural gas liquids and crude oil for Anadarko and other producers and customers. Shareholders receive a 3.9% distribution. The Deutsche Bank price target for the stock is $72, while the consensus is $69. Western closed Monday at $60.38.
Access Midstream Partners L.P. (ACMP) is the industry’s largest gathering and processing MLP as measured by throughput volume. It focuses on operations in many of the top shale plays in the country, and earnings growth has been outstanding. Investors are paid a 4.1% distribution. The Deutsche Bank target price for the stock is $62, and the consensus is at $59. Access closed Monday at $50.80.
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While these were the top focus names to buy at Deutsche Bank, the firm also has Buy ratings on Buckeye Partners L.P. (BPL) with a $75 price target, Rose Rock Midstream L.P. (RRMS) with a $44 price target, Energy Transfers Equity L.P. (ETE) with a $75 price target and Kinder Morgan Management LLC (KMR) with a $99 price target.
The threat of rising interest rates often tends to scare away investors interested in the MLP space. The fact that these companies are raising their distributions faster than expected provides potential investors a good hedge to rising interest rates in the future. In addition, as the United States becomes an increasingly larger energy producer, these top stocks should continue to grow and benefit.