5/23/14: Gas-Powered Growth

By Ari Charney and Khoa Nguyen • May 23, 2014

What to Buy: Legacy Reserves LP (NSDQ: LGCY)

Why to Buy Now: Midland, Texas-based Legacy Reserves LP (NSDQ: LGCY) is an energy exploration and production master limited partnership (MLP), with properties primarily situated in the Permian Basin, Mid-Continent and Rocky Mountain regions.

The oil-weighted MLP recently announced a fairly transformative deal that will better diversify its resource base across both gas and liquids, while greatly increasing production and boosting cash flows.

Unlike some acquisitions in the MLP space, the innovative deal structure does not overly dilute unitholders. At the same time, the deal’s terms also provide a significant incentive for Legacy’s new strategic partner to drop down additional accretive assets to the MLP in the near future.

With the cash flow potential from additional dropdowns, Wells Fargo forecasts the distribution to rise by 4 percent annually over the next five years.

The current quarterly distribution of $0.595, or $2.38 annually, offers a forward yield of 8.6 percent.

Buy Legacy Reserves LP below 28.

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About The Author

Bio | Archive

Ari Charney is the chief investment strategist for Utility Forecaster and Income Millionaire.

Prior to joining Investing Daily, Ari took an unlikely path toward dispensing investment advice. Shortly after graduating with a bachelor’s degree in political science from New York University, Ari sampled some of Wall Street’s best-known brokerages and investment banks for several months as an associate. His favorite memory was being paid an absurdly high hourly wage to point and yell at the bond salesmen on the legendary Bear Stearns trading floor when they had incoming phone calls.

Thereafter, Ari spent a substantial portion of his career at financial industry rating services. First, he pored over spreadsheets at the preeminent bond rating agency Moody’s Investors Service. Later, he analyzed investment newsletters for nearly eight years at The Hulbert Financial Digest (HFD).

While working for the HFD, Ari discovered his passion for helping self-directed investors select the right investment newsletter. Since joining Investing Daily, he’s extended that passion further by guiding investors toward the right securities for their portfolios.

In his free time, he and his wife tote their son along on their ethnic dining adventures in pursuit of the fabled Bosnian burger and the Thai restaurant with the secret Laotian menu.