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Targa Resources Can Produce 10% Distribution Growth in 2013

Targa Resource Partners (NGLS) is a buy recommendation for income investors.  The MLP has a current dividend yield of 5.98%.  NGLS has a 5-year average annual dividend growth rate of 10%.  NGLS is a strong buy recommendation with a 12-month target price of $51.

Targa Resource Partners announced that the board of directors of its general partner has declared a quarterly cash distribution of $0.6975 per common unit, or $2.79 per common unit on an annualized basis, for the first quarter 2013.  The approved distribution represents an increase of approximately 3% over the previous quarter’s distribution and 12% over the distribution for the first quarter 2012. This cash distribution will be paid May 15, 2013 on all outstanding common units to holders of record as of the close of business on April 29, 2013.

First quarter 2013 net income attributable to Targa Resources Partners

was $38.9 million compared to $70.1 million for the first quarter of 2012. Net income per diluted limited partner unit was $0.16 in the first quarter of 2013 compared to $0.63 for the first quarter of 2012. The Partnership reported earnings before interest, income taxes, depreciation and amortization and other non-cash items (“Adjusted EBITDA”) of $132.2 million for the first quarter of 2013 compared to $145.4 million for the first quarter of 2012.

NGLS is a quality mid-cap natural gas processing and fractionation MLP that has an impressive array of fee-based expansion projects set to come into service over the next 18-24 months that should help to offset an over-supplied, and consequently, soft NGL pricing environment for the next three years. The key question regarding investing in NGLS is how the fee-based operating margin from the expansions will offset the drag from likely NGL over-supply. We believe that NGLS’ recent emphasis on fee-based operations will allow it to continue providing its unitholders distribution growth well above the sector average. Given the increasing percentage of fee-based projects, NGLS’s mix should improve to near 55% by the end of 2013 and 65% by the end of 2014. NGLS reiterated its guidance of 10%-12% distribution growth for 2013 and is comfortable having 0.9x coverage for the first half of the year which improves as the year goes on and as expansion projects are completed. Management is guiding to an average of ~1.0x for FY2013. We are modeling high single digit distribution growth for the next several years.

We are holding our three-year distribution growth forecast of 9% CAGR. NGLS’s 4Q results give us confidence that the growing fee-based portion of its business (Logistics, Marketing, Badlands) could support distribution growth despite a challenged NGL pricing environment for the next few years.

We are making minor changes to our outlook with DCF/unit adding $0.03 to $2.97 in FY2013 on lower assumed equity issuance, though EBITDA drops $23mm to $623mm after the 1Q miss and re-setting our commodity price deck. NGLS reiterated its $595mm-$655mm EBITDA guidance for 2013 and 1.0x distribution coverage for 2013 overall.

Best Income Stocks for 2013 – HollyFrontier (HFC)

HollyFrontier Corporation (NYSE: HFC) operates as an independent petroleum refiner and marketer in the United States. It produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, liquefied petroleum gas, fuel oil, and specialty and modified asphalt.  HollyFrontier has a strong history of increasing shareholder value with special dividends and share buybacks.  The company trades at a discount to other refiners, has a strong balance sheet, is well managed and is looking to expand

HollyFrontier made the Goldman Sachs “Best Income Stocks” list for 2013.  In a recent note, Goldman Sachs Group Inc. pointed out a number of stocks that could provide some easy money for investors by virtue of what the Wall Street bank calls a “social contract” — a combination of earnings appreciation due to expected share buybacks along with dividend yields.  It could be easy money, provided shares remain stable or rise, for investors looking for as close to a guarantee as equities can offer.

HollyFrontier boasts an 8.4% dividend, more than twice that of any other company.  But its relatively low 3.5% buyback earnings accretion keeps the total payout at 11.9%.  Trading in the upper $40s, HollyFrontier also is considered to have the highest price upside of nearly 50%, with a target of $69.

HollyFrontier has an equity summary score of 7.6 out of 10 for a Bullish outlook.  HFC has a mean analyst recommendation of 2.2 out of 4.0 for a BUY rating.

HollyFrontier reported 3Q earnings increased 18.5%  and 9 months earnings increased 15% from the same periods a year earlier.

HollyFrontier reported third quarter net income attributable to stockholders of $600.4 million or $2.94 per diluted share for the quarter ended September 30, 2012, compared to $523.1 million or $2.48 per diluted share for the quarter ended September 30, 2011. For the nine months ended September 30, 2012, net income attributable to HollyFrontier stockholders totaled $1,335.6 million or $6.44 per diluted share compared to $800.0 million or $5.63 per diluted share for the nine months ended September 30, 2011.

HollyFrontier’s President & CEO, Mike Jennings, commented, “We had a tremendous quarter with third quarter results reaching new record levels. Exceptionally high inland to coastal crude oil differentials as well as robust heavy crude oil differentials helped drive our refined product margins to all time highs. Looking forward, we believe that the structural crude advantages currently driving our strong operating margins will continue to positively impact our operating income, allowing us to continue to pay both regular and special dividends. We remain focused on increasing total shareholder return while maintaining a strong balance sheet.”

On November 1, HollyFrontier raised its quarterly dividend 33% and also unveiled an additional special payout of 50 cents per share, the refiner’s latest moves to reward investors.

 

The five-cent increase to HollyFrontier’s regular dividend brings the payout to 20 centsper share and will cost the company about $40.7 million more a year. HFC has a current dividend yield of 1.69%.  The latest dividend increase represents the fourth dividend increase since the company’s merger in July 2011.

HollyFrontier said its special cash dividend, its fifth special payout this year.  The company’s board year-to-date has declared $3.10 in special and regular dividends, which represents an approximate 8% cash yield.

HollyFrontier Corporation (NYSE: HFC) was one of the big winners for subscribers to the Get Rich Monthly income Plan.  HFC was purchased in January 2012 as part of the perpetual covered call strategy.  Monthly Income subscribers received the $3.10 in dividends and $1,690 in total call option premium.  The total return on HFC during 2012 was 212% for newsletter subscribers.

 

10 High Yield Energy Companies Increasing Their Dividends

As earnings season takes focus on the stock market, many energy companies are increasing their dividends.  While some of these energy plays are Bullish and others are Bearish, they are all playing the dividend growth game with investors.  Here are 10 energy stocks increasing their payouts in the past week.

El Paso Pipeline Partners, L.P. (EPB) increased its quarterly cash distribution per common unit to $0.55 ($2.20 annualized) payable on Aug. 14, 2012, to unitholders of record as of July 31, 2012. This represents a 15 percent increase over the second quarter 2011 cash distribution per unit of $0.48 ($1.92 annualized) and an 8 percent increase from $0.51 per unit ($2.04 annualized) for the first quarter of 2012. EPB has increased its cash distribution 17 consecutive quarters since its initial public offering in November 2007.

Bottom line: EPB has a current dividend yield of 6.23%.  It has an equity summary score of 7.8 out of 10 for a Bullish outlook.

Enterprise Products Partners L.P. (EPD) announced that the board of directors of its general partner declared an increase in the quarterly cash distribution rate paid to partners to $0.6350 per common unit, or $2.54 per unit on an annualized basis.  The quarterly distribution will be paid on Wednesday, August 8, 2012, to unitholders of record as of close of business on Tuesday, July 31, 2012. This distribution rate, which represents a 5 percent increase over the $0.6050 per unit distribution rate declared with respect to the second quarter of 2011, is the 41st distribution increase since Enterprise’s initial public offering in 1998 and the 32nd consecutive quarterly increase.

Bottom line: EPD has a current dividend yield of 4.65%.  It has an equity summary score of 7.1 out of 10 for a Bullish outlook.

Kinder Morgan Energy Partners, L.P. (KMP) ) today increased its quarterly cash distribution per common unit to $1.23 ($4.92 annualized) payable on Aug. 14, 2012, to unitholders of record as of July 31, 2012. This represents a 7 percent increase over the second quarter 2011 cash distribution per unit of $1.15 ($4.60 annualized) and is up from $1.20 per unit ($4.80 annualized) for the first quarter of 2012. KMP has increased the distribution 44 times since current management took over in February 1997.

Bottom line: KMP has a current dividend yield of 5.75%.  It has an equity summary score of 6.3 out of 10 for a Neutral outlook.

Western Gas Partners, LP (WES) announced that the board of directors of its general partner has declared a cash distribution of $0.48 per unit for the second quarter of 2012, representing a 4-percent increase over the prior quarter and a 19-percent increase over the second quarter of 2011. The distribution is payable on August 13, 2012, to unitholders of record at the close of business on July 31, 2012.

Bottom line: WES has a current dividend yield of 4.22%.  It has an equity summary score of 6.0 out of 10 for a Neutral outlook.

Targa Resources Partners LP (NGLS) announced today that the board of directors of its general partner has declared a quarterly cash distribution of 64.25¢ per common unit, or $2.57 per common unit on an annualized basis, for the second quarter 2012. The approved distribution represents an increase of approximately 3% over the previous quarter’s distribution and 13% over the distribution for the second quarter 2011. This cash distribution will be paid August 14, 2012 on all outstanding common units to holders of record as of the close of business on July 23, 2012.

Bottom line: NGLS has a current dividend yield of 6.76%.  It has an equity summary score of 5.4 out of 10 for a Neutral outlook.

Williams Company (WMB) also revised its outlook for FY13 downward, projecting EPS of $1.38, down from the prior guidance of $1.55, and below the consensus of $1.60.   WMB continues to expect to pay a full-year 2012 shareholder dividend of $1.20 per share, a 55% increase over 2011. The company confirmed it expects the full-year dividend it pays shareholders in each 2013 and 2014 to increase by 20% to $1.44 and $1.75 per share, respectively.

Bottom line: WMB has a current dividend yield of 3.99%.  It has an equity summary score of 4.8 out of 10 for a Neutral outlook.

Targa Resources Corp. (TRGP) announced today that its board of directors has declared a quarterly cash dividend of 39.375¢ per share, or $1.575 per common share on an annualized basis, for the second quarter 2012. The approved dividend represents increases of approximately 8% over the previous quarter’s dividend and 36% over the dividend for the second quarter 2011. This cash dividend will be paid August 15, 2012 on all outstanding common shares to holders of record as of the close of business on July 23, 2012.

Bottom line: TRGP has a current dividend yield of 3.51%.  It has an equity summary score of 3.6 out of 10 for a Neutral outlook.

Kinder Morgan, Inc. (KMI) reported second quarter cash available to pay dividends of $307 million, up 83 percent from $168 million for the comparable 2011 period. Through the first six months, KMI reported cash available to pay dividends of $610 million, 40 percent higher than $435 million for the first half of 2011. KMI is expected to finish the year significantly ahead of its published annual budget due to its recent acquisition of El Paso Corporation.  The board of directors increased the quarterly cash dividend to $0.35 per share ($1.40 annualized), which is payable on Aug.15, 2012, to shareholders of record as of July 31, 2012. This represents a 17 percent increase over the second quarter 2011 cash distribution per unit of $0.30 ($1.20 annualized) and is up 9 percent from the first quarter 2012 dividend of $0.32 ($1.28 annualized) per share.

Bottom line: KMI has a current dividend yield of 4.0%.  It has an equity summary score of 2.0 out of 10 for a Bearish outlook.

Williams Partners L.P. (WPZ) announced that the regular quarterly cash distribution its unitholders receive has been increased to $0.7925 per unit.  The board of directors of the partnership’s general partner has approved the quarterly cash distribution, which is payable on Aug. 10, 2012, to unitholders of record at the close of business on Aug. 3.  The new per-unit amount is an 8.2-percent increase over the partnership’s distribution of$0.7325 per unit that was paid in August 2011. It is also a 2-percent increase over the partnership’s first-quarter 2012 distribution of $0.7775 per unit.

Bottom line: WPZ has a current dividend yield of 5.63%.  It has an equity summary score of 2.0 out of 10 for a Bearish outlook.

Spectra Energy Partners, LP (SEP) announced that the board of directors of its general partner declared a quarterly cash distribution to unitholders of $0.485 per unit, an increase of one-half cent over the previous level of $0.48per unit. This is the 19th consecutive quarter that Spectra Energy Partners has increased its quarterly cash distribution. The cash distribution is payable on August 14, 2012, to unitholders of record at the close of business on August 3, 2012. This quarterly cash distribution equates to $1.94 per unit on an annual basis.

Bottom line: SEP has a current dividend yield of 6.01%.  It has an equity summary score of 1.5 out of 10 for a Bearish outlook.

7 Energy Stocks with Buy Ratings

The Energy Sector comprises companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy related service and equipment, including seismic data collection. Companies engaged in the exploration, production, marketing, refining and/or transportation of oil and gas products, coal and other consumable fuels.  This screen looks at the highest yielding unit trust securities in the energy sector.  These stocks are rated 4 or 5 stars by Standard & Poor’s meaning they are classified as buys or strong buys. The latest S&P research notes are shown below.

Energy Transfer Partners LP (EPT) – After reviewing our earnings model, we lower our ’12 earnings per unit estimate to $2.64 from $3.20, reflecting the sale of its propane operations. On January 12, ETP announced that it had closed on the sale of propane operations to AmeriGas Partners, L.P. (APU 44, Hold) for approximately $2.85 billion. We view the transaction positively as it should enable ETP to focus on its natural gas liquids services. We keep our target price of $53, based on an expected yield of 6.9% on our forward distributions projection, higher than the peer average.

Regency Energy Partners LP (RGP) – After reviewing our earnings model, we keep our Q4 ’11 and full-year ’11 earnings per unit estimates of $0.24 and $0.63, respectively. We view positive RGP’s efforts to expand its natural gas liquids footprint. RGP plans to invest $630 million-$680 million in capex in ’12, vs. $373 million in ’11. We keep our ’12 earnings per unit estimate of $0.99 and initiate ’13’s at $1.01. Due to a recent rise in peer valuation multiples, we lift our target price by $2, to $29, based on our target yield of 6.6% on estimated 12-month forward distributions, higher than its peers.

Crestwood Midstream Partners LP (CMLP) – Ahead of Q4 earnings expected on February 25, we lower our Q4 earnings per unit estimate to $0.34
from $0.39 and our ’11 earnings per unit estimate to $1.10 from $1.15, based on lower gathering volumes. We maintain our ’12 earnings per unit forecast of
$1.68. CMLP declared a Q4 cash distribution of $0.49, 14% higher than a year earlier. We believe that CMLP will increase its cash distributions 8% to $2.02
in ’12. We keep our 12-month target price of $32, based on expected yield of 6.3% on our forward annualized distribution estimate, higher than the peer average.

Buckeye Partners LP (BPL) – Ahead of Q4 results scheduled for Feb 10, we maintain our Q4 earnings per unit estimate of $0.94, vs. adjusted $0.66. We keep our ’11 and ’12 earnings per unit forecasts of $3.37 and $3.75. In ’12, we expect BPL to raise its cash distribution by 4.1% to $4.24 per unit. We are encouraged by BPL’s efforts to increase waterborne refined products going into New York Harbor in order to replace volumes lost from expected refinery closures in the Northeast. We keep our target price of $75, based on a target yield of 5.6% on our forward cash distribution, below the peer average.

Kinder Morgan Energy Partners LP (KMP) – KMP posts an adjusted Q4 earnings per unit of $0.55, vs. $0.46, above our $0.51 estimate, reflecting better than expected earnings at its natural gas pipelines and CO2 pipelines segments. In ’12, we see KMP benefiting from strong growth at its products pipelines and natural gas pipelines segments. We keep our ’12 earnings per unit estimate of $2.34 and introduce our ’13 estimate of $2.51. We increase our target price to $99 from $96, based on a revised target yield of 5.0% on our estimated forward distributions, below its peer average.

Plains All American Pipeline LP (PAA) – The proposed acquisition of Canadian NGL and LPG assets from BP plc (BP 43, Hold) for $1.67B is expected
to boost PAA’s ’12 distribution payout 8%-9% ($3.98 currently). Also, PAA has entered or completed 4 other deals for a total of $620M, focused on South Texas oil. Separately, and before acquisitions, PAA sees Q4 EBITDA exceeding guidance of $410M by 10%-15%, and we lift our ’11 earnings per unit forecast $0.22 to $4.90. Based on a target yield of 5.4%, in line with peers, and a ’12 distribution growth target of 4%-5% before acquisitions, we up our target price
by $3 to $76.

Enterprise Products Partners LP (EPD) – EPD posts Q4 earnings of $0.82, vs. $0.33, above our $0.56 estimate, reflecting better than expected
results at its natural gas liquids pipeline and services segment. Q4 cash distributions rose 5.1% to $0.62 per unit. We forecast cash distributions
increasing 6.0% to $2.58 per unit this year. In ’12, we see EPD gaining from strong NGL demand. We keep our ’12 earnings per unit estimate at $2.24, and
increase our 12-month target price to $59 from $54, based on an expected yield of 4.4% on our forward distribution forecast, lower than its peer average, on
strong NGL fundamentals.

Click to enlarge

 

 

Natural Gas Energy Stocks with High Dividend Yields

As the price of a barrel of oil continues to trade around $100 per barrel, the price of natural gas has plummeted like a rock.  Natural gas is currently trading
at $2.33 million BTUs (British Thermal Units).  Usually, the price of gas to oil is 6:1 but with natural gas trading at $2.33 and oil around $100 the ratio is
43:1.  Natural gas hasn’t been this cheap since 2002.  The best trade on natural gas today is to buy cheap assets and wait until their value increases. The natural gas companies have dropped in price along with the market price of natural gas.  However, you will be confronted with an uncertain amount of time for natural gas market prices to increase to normal price levels.   You will want to find natural gas stocks that pay you dividends while waiting on the natural gas price rebound.  These include the high yield natural gas storage stcoks and royalty trusts like discussed below.

PAA Natural Gas Storage (PNG) is engaged in acquiring, developing, operating and commercializing management of natural gas storage facilities to a mix of customers, including local gas distribution companies, electric utilities, pipelines, direct industrial users, electric power generators, marketers, producers, liquefied natural gas importers and affiliates of such entities.  As of Dec 31, 2010, it owned and operated tow natural gas storage facilities in Louisiana and Michigan that have an aggregate working gas storage capacity of 50.00 billion cubic feet and an aggregate peak injection and withdrawal capacity of 1.70 billion cubic feet per day and 3.20 billion cubic feet per day, respectively.  On January 10, 2012,  PNG announced its quarterly cash distribution of $0.3575 per unit  ($1.43 per unit on an annualized basis) on all of its outstanding common and Series A subordinated units.  The distribution will be payable on February 14, 2012, to holders of record of such units at the close of business on February 3, 2012.  This distribution is equal to the quarterly distribution paid in November 2011, and represents an increase of approximately 3.6% over the quarterly distribution of $0.345 per unit ($1.38 per unit on an annualized basis) paid in February 2011.  PNG has an annualized dividend yield of 7.73%.

Niska Gas Storage Partners (NSK) owns and operates natural gas storage assets.  It stores natural gas for a range of customers, such as financial institutions, marketers, pipelines, power generators, utilities and producers of natural gas.  NKA provides storage services under long-term firm contracts, whereby customers pay monthly reservation fees in exchange for the right to inject, store and withdraw volumes of natural gas on days and for periods selected by them. NKA also provides services under short-term firm contracts, whereby customer pays a fixed fee to inject certain quantity of natural gas on a specified date or dates and to store that gas in its storage facilities until withdrawal.  NKA has a dividend yield of 14%.

Pengrowth Energy is a Canadian resource company that is engaged in the production, development, exploration and acquisition of oil and natural gas assets. As of Dec 31, 2010, total gross proved reserves for light and medium oil consisted of 80,746 thousands of barrels (“Mbbl”), heavy oil consisted of 15,138 Mbbl, natural gas liquids consisted of 20,726 Mbbl, natural gas consisted of 531,374 millions of cubic feet (“MMcf”) and coal bed methane consisted of 48,262 MMcf.  At the close of trading January 23, PGH stock was at $10.61 per share on daily volume of 1,005,854 shares.  PGH’s 52-week price range stood at $7.99 to $14.60, which had its $10.61 closing quote off its 52-week high by about 27.3%.  PGH announced its February 15, 2012 cash dividend will be C$0.07 per common share.  This is an annual dividend yield of 7.83% paid on a monthly basis.

 

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