Dividend, Growth and North American Shales: An Expert Energy Portfolio Manager Shares His Take on MLPs
67 WALL STREET, New York - April 18, 2013 - The Wall Street Transcript has just published its Investing in Energy, MLPs and Other Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Portfolio Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Value Investing, Long-Term Investing, High Quality Companies, Investment Strategies, Large Cap Investing, Investing in Energy, Oil and Gas
Companies include: Targa Resources Partners LP (NGLS), Plains All American Pipeline L (PAA), Centerpoint Energy Inc. (CNP), Kinder Morgan Energy Partners (KMP), Enterprise Products Partners L (EPD) and many more.
In the following excerpt from the Investing in Energy, MLPs and Other Strategies Report, an portfolio manager discusses his investment philosophy and his portfolio-construction strategy:
TWST: What are some of your top investment picks right now? Tell us a bit about why.
Mr. Reid: Sure, and I think what I should tell you, too, is we have historically been able to deliver returns to investors in the mid- to high teens. Actually, we have been unbelievably blessed to have high rates of return in this space. As a starting place, what we are trying to do with the strategy today is achieve approximately a 5% to 6% current yield and achieve growth in the 7% to 10% a year range. That leads us to expect returns in the low to mid-teens, so call it 10% to 13%. With that in mind, I will go through some of our top 10 positions, because those are pretty commonly owned across all the different strategies we have.
One we like right now is Targa Resources (NGLS), a company in Houston. It's a gathering-and-processing MLP, a midcap company, and they have both a general partner, TRGP, and a limited partner, NGLS, that are public. We own both of them, for different reasons. The limited partner MLP is trading at about a 6% current yield, and we are expecting to see 10% growth this year in their distribution, so that looks like a 15% or 16% total return opportunity when we look at that next 12 months' return. The general partner is a C-Corp general partner; it yields 2.8% today.
By moving into the general partner you get a growth rate that's around 2.5 times to three times as high, so we are looking for 25% to 30% annual growth in the dividend in that case, so that is a better total return opportunity to invest in the general partner. And so what we do in that case is we own both the GP and the LP and achieve some diversification, and those have been fantastic investments for us for the last three to five years. That's an example of one of our top holdings.
Among the larger-cap companies that we have larger positions in, here in Houston we have...
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