Here's a way to reduce volatility.
When looking for dividends, many investors see that the energy sector holds promise. However, over the last several years there has been plenty of uncertainty regarding crude oil prices that made many of the stocks in the sector more volatile. But what if you could tap into the income potential of energy stocks without the exposure to fluctuating prices? That's what pipeline stocks offer. These infrastructure plays are glorified toll takers on the road between energy explorers and the gasoline pumps, propane tanks and industrial customers who use finished products. Here are seven of them that are yielding 7% or more.
Antero Midstream Corp. (ticker: AM)
So-called "midstream" energy companies like pipeline operator Antero may not be able to capitalize on bigger margins when oil and gas prices rise, but they are also insulated from any downside risk when prices fall. That adds up to more reliable revenue -- and more reliable dividends. Antero Midstream just completed a "simplification" merger with its general partner parent with a similar name to help streamline operations and based on dividend history already offers a generous yield. That means the operational savings could be passed on through even bigger distributions in the years ahead.
Current yield: 7.9%
Buckeye Partners (BPL)
Buckeye owns and operates roughly 6,000 miles of pipeline located primarily in the northeastern and midwestern United States, servicing more than 100 delivery locations for liquid petroleum products with storage capacity that tops 55 million barrels. It's safe to say that if you're using oil and gas in these regions, it has passed through a BPL facility. Unlike some of the other sleepier stocks on this list, Buckeye has been performing incredibly well in the last year versus the broader stock market. In addition to a juicy yield, BPL stock is up more than 18% in the last 12 months to slightly outperform the S&P 500 index in the same period.
Current yield: 8.6%
DCP Midstream (DCP)
Another pipeline stock worth watching for income, DCP differs from some of the other stocks on this list because of consistency in payouts. Many of these transportation and storage names have a hard link between their performance and their dividends, which can mean payouts fluctuate quarter to quarter. However, DCP paid 78 cents per share every three months since early 2015. The downside of this is that dividends haven't been moving any higher. However, long-term investors who are interested in pipeline stocks typically find appeal in the stability and consistency of these stocks rather than growth potential -- and given the tremendous yield, that may be a trade-off worth taking.
Current yield: 9.3%
Enable Midstream Partners (ENBL)
Based in Oklahoma City, Enable Midstream Partners operates in two segments serving mostly natural gas companies, with one arm of the company processing energy and the other storing and transporting related products. Its processing facilities are in the heart of "fracking" country, with operations in energy-rich shale fields across North Dakota, Texas, Oklahoma and other key areas of the U.S. Additionally, its portfolio of midstream storage and transportation infrastructure assets includes 13,900 miles of pipelines and 84.5 billion cubic feet of natural gas storage capacity. Natural gas produced with hydraulic fracturing is abundant and in demand, and Enable is an integral part of this onshore energy business.
Current yield: 8.8%
EnLink Midstream (ENLC)
EnLink is another natural gas and crude oil play that's focused on transportation and storage, but thanks to its headquarters in Dallas and strategically located operations in Texas and Louisiana, it also has a bit more of a traditional distribution business via trucks and barges in addition to its 11,000 miles of pipelines. EnLink also operates a unique business related to fracking: brine disposal wells, where the chemical and water mixture used to fracture shale fields is deposited after use. The unique location and characteristics of EnLink make it a key player in the 21st century American energy business, and consistently generates revenue that leads to consistently reliable dividends.
Current yield: 8.5%
MPLX LP (MPLX)
One of the very largest energy infrastructure plays at present, MPLX is a $26 billion midstream powerhouse with operations across 17 states. This includes massive liquefied petroleum gas storage facilities in West Virginia, Michigan and Illinois that can hold the combined equivalent of nearly 4.2 billion barrels of energy, and 21 docks at terminals from the Gulf Coast to main inland rivers in the Midwest that help serve its fleet of more than 250 barges. If you want scale, it's hard to match this midstream giant. But the icing on the cake is that it is a subsidiary of the global integrated oil company Marathon Petroleum Corp. (MRO). That creates a firm link with a key "customer" of this network, which adds a lot of certainty to future revenue trends.
Current yield: 7.7%
Targa Resources Corp. (TRGP)
Targa Resources is another biggie with a market capitalization of more than $9 billion and a host of transportation assets that make it an integral part of the domestic oil and natural gas business. TRGP operates 28,500 miles of pipeline, more than 40 processing plants and storage wells with more than 71 million barrels of capacity. As for transportation, it has leased or purchased almost 600 railcars to get its energy products around. Looking forward, Targa continues to tighten its grip on energy distribution with its recent "open season" for its Grand Prix pipeline in New Mexico that aims to lock in long-term contracts for the use of its facilities.
Current yield: 8.6%
Pipeline stocks to buy with big dividends.
-- Antero Midstream Corp. (AM)
-- Buckeye Partners (BPL)
-- DCP Midstream (DCP)
-- Enable Midstream Partners (ENBL)
-- EnLink Midstream (ENLC)
-- MPLX LP (MPLX)
-- Targa Resources Corp. (TRGP)
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