Most Loved Partnerships
In the course of my research I regularly use custom stock screens to uncover overlooked companies. But this week I used a screen to review MLPs rated highly by analysts. This is an exercise I previously undertook back in April for energy corporations (see Uncovering the Little Darlings).
A consensus “Buy” rating isn’t necessarily a ticket to riches, as analysts are well-known for jumping on trailing-indicator bandwagons. Nevertheless, I like to periodically review highly rated stocks just to make sure I haven’t overlooked something. It is also interesting to compare and contrast what’s popular to what’s been working for our portfolios at MLP Profits.
For this screen I used my proprietary screening tool to extract data from the S&P Global Market Intelligence database. While the database tracks 68,924 energy companies around the world, I focused on the 100-plus publicly traded master limited partnerships.
I then narrowed the search by requiring research coverage by at least three analysts and an average recommendation of at least “Outperform,” or 2, on a scale that goes from 1 (“Buy”) to 5 (“Sell”). The screen identified 15 securities meeting these criteria. Most of them are conventional midstream MLPs, with a few exceptions:
- EV – Enterprise Value in millions of dollars as of Aug. 24
- FCF – Free cash flow for the trailing 12 months (TTM)
- Yld – Annualized yield based on the most recent distribution
- YTD Ret – Total shareholder return (TSR), including dividends, in 2016
Landmark Infrastructure Partners (NASDAQ: LMRK), the company with the highest average rating by analysts, is an unconventional MLP that went public in late 2014. LMRK acquires, owns and manages a portfolio of real estate leased to companies in the wireless communication, outdoor advertising and renewable power generation industries. The current unit price is below the 2014 IPO price, but it has rallied thus far in 2016.
Two of the partnerships on the list, Buckeye Partners (NYSE: BPL) and Genesis Energy (NYSE: GEL) were highlighted in last week’s column as ones that don’t have to pay incentive distribution rights (IDRs).
Pattern Energy Group (NASDAQ: PEGI, TSE: PEG) is a dividend-paying “yieldco” focused on wind power. PEGI has a different corporate structure than conventional MLPs, and therefore the tax treatment of its distributions may vary.
Golar LNG Partners (NASDAQ: GMLP) is a partnership organized and headquartered outside the U.S. that has has elected to be taxed as a corporation and will furnish 1099 tax forms rather than K-1s. Some income will be treated as a dividend, and some as return of capital.
Overall this group has a year-to-date total return of 18%. That’s better than the 13.6% for the Alerian MLP Index (AMZ) on a total return basis. The 6.6% average yield of this group slightly trails AMZ’s current 7.1%.
While we do have areas of agreement with the conventional wisdom in this table, we also think analysts got it wrong on some of the recommendations. In particular, we have been on record that the refinery space faces some near-term challenges, so we would avoid most refinery logistics MLPs like Valero Energy Partners (NYSE: VLP) and Tesoro Logistics (NYSE: TLLP), both of which are down for the year.
We have also cautioned against buying Shell Midstream Partners (NYSE: SHLX), the worst performer on the list, when we felt the price had raced ahead of fundamentals. The same goes for Cheniere Energy Partners (NYSE: CQP), which benefited from a lot of hype when liquefied natural gas exports from the Cheniere facility on the Gulf Coast started late last year. However, CQP has at least managed a positive YTD return.
By my count, about a third of the MLPs in the table appear in various portfolios at MLP Profits. For in-depth analysis of our outperforming Best Buy list, please consider subscribing.