Analyzing Five High Yielding Oil & Gas Pipeline Stocks

The past few months have been something of a roller coaster ride for major equities, as investor confidence has declined along with broad markets. During times like these, finding returns for your portfolio can be next to impossible, as certain assets will be up one day only to be slaughtered the next. Commodity investors may be especially confused with market performance, as the recent erratic sessions for the U.S. dollar seem to be tossing futures contracts back and forth on a daily basis.But for those looking to find gains in the commodity space, there are still lucrative options out there that offer strong opportunities, particularly those that are offer high yields. Most commodity investors aren’t too concerned with yield, as a fair amount of them tend to be active traders; moving in and out of futures positions multiple times a day. After all, futures contracts are not meant for “buy and hold” investors. Active traders can still profit from a volatile environment such as this, but it is the uncertainty on a daily basis that makes it hard to make the right call on a particular commodity [see also Company Spotlight: First Solar (FSLR)].

Here is where high yield enters; dividends add a steady stream of income that can help boost a portfolio in even the gloomiest of environments. Furthermore, high yields can act as a hedge to inflation, as dividends tend to increase in line with inflation, and also as a hedge against bear markets, as payments still come in during time of economic hardship, assuming the dividends are not suspended (a generally rare occurrence). Dividends are also an indicator of a healthy company; while some companies can cook the books, nothing says business is going well quite like a cash payment to all shareholders.

Consider this, a recent study conducted by Standard & Poor’s revealed that dividend components were responsible for 44% of the total return in the last 80 years of the S&P 500′s history. From 1950 until 2010, an investment of one dollar with dividends and reinvestment would have performed eight times better than a dollar invested in a non-dividend fund; that dividend invested dollar would be worth roughly $500 today. Finding strong yield, however, isn’t always possible in the commodity space but can be easier to come by in oil and gas transportation companies. These firms act as the toll roads of the oil and gas world, providing pipelines and other infrastructure assets that help to move vital commodities around the nation. Thanks to their use no matter what the economic situation, they tend to hold up better than most sectors of the commodity world and are able to spit off high dividend yields regardless of broad market conditions. In light of this, we analyze five high yielding oil and gas pipeline companies to help investors add a dependable income stream to their portfolios [see also Gas Prices Around The Globe: Explaining The Discrepancy].

Whiting USA Trust One (WHX) – Dividend yield of 17.1%

Whiting USA Trust is a royalty of Whiting Petroleum Corporation and was founded in 2007. The subsidiary represents the right to receive 90% of the net proceeds from Whiting’s interests in oil and natural gas producing pipelines, the majority of which lie in the Rocky Mountain and Gulf Coast regions of the US. The company then passes on distributions to its shareholders, allowing it to pay out a robust yield. But investors should be wary that while this stock is paying out a dividend of 17%, its 19% losses on the year may be of some major concern to those who are unsure of how this stock will fair in our current environment [see also The Ultimate Guide To Natural Gas Investing].

Energy Transfer Partners L.P. (ETP) – Dividend Yield of 8.2%

ETP is a master limited partnership (MLP) and derives its business primarily from the infrastructure and transportation of the natural gas. The company has pipelines all over the country, including Arizona and Colorado, on top of owning the largest intrastate pipeline in Texas. The MLP is one of the largest propane retailers in the U.S. as well as owning a fair amount of liquid natural gas storage and transportation assets. The stock price for ETP is no stranger to big swings, but for those willing to stomach the volatility, the 8% dividend yield will surely add a nice income stream to your portfolio.

Boardwalk Pipeline Partners, LP (BWP) – Dividend Yield of 7.9%

Another MLP, Boardwalk is primarily engaged in the transportation and storage of liquid natural gas. In fact, in 2010 their systems carried approximately 10% of the nation’s average daily consumption of natural gas, making them a major player in the oil & gas pipeline sector. The company has over 14,000 miles of pipeline through out 12 states, as well as three subsidiaries to keep operations focused in different regions across the US. BWP is one of the larger companies on this list, as their market cap comes in at just over $5 billion with a P/E ratio of nearly 23. But while the 7.9% yield seems like an attractive option, investors should consider that BWP’s current quarterly earnings growth (yoy) is -72%, painting a hazy future for this stock in the near term [see also Three ETFs For NatGas Act 2011].

Enbridge Energy Partners LP (EEP) – Dividend Yield of 7.7%

Right off the bat, investors will notice that EEP is a relatively popular stock, as it changes hands over 630,000 times daily with a market cap nearing $7 billion. The company has a more broad based business model that transports crude as well as natural gas. EEP split its shares in April of this year, and has been a relatively strong performer over the trailing 52-weeks, while other stocks on this list cannot say the same. Investors should note that the EPS of this stock is -1 for the time being, so while it may have strong growth prospects, it is currently operating in the red.

DCP Midstream Partners LP (DPM) – Dividend Yield of 6.5%

The final company on this list is another MLP with an attractive yield. DCP Midstream is headquartered in Denver and “leads the midstream segment as the second-largest natural gas gatherer and processor, is the largest natural gas liquids producer, and is one of the largest marketers of natural gas and natural gas by-products in the United States”. Another noteworthy characteristic is that DCP is a 50/50 joint venture between Spectra Energy and the massive ConocoPhillips. DPM’s P/E ratio of 137.5 suggests that they don’t have much in the way of earnings but their stock has performed well in the last year, which may make it a good candidate for an income addition to an investment portfolio.

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Disclosure: Photo courtesy of Glen Dillon. No positions at time of writing.

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