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The Best MLPs to Own Now

Many of the blue-chip dividend payers are hitting new 52-week price highs.  This is concerning as when price increases, yields will fall.  Because of the soaring popularity of blue-chip dividend payers, more investors are turning to master limited partnerships (MLP).  These are pass-through entities that must pay at least 90% of their taxable income to investors. Many of these issues provide yields double those of blue-chip dividend stocks, and three to four times that of the 10-year Treasury note.

With that in mind, here is a list of MLPs that distribute high dividend yields.  Each company boasts a healthy bottom line already, and should continue to generate income as oil prices rise. As they generate income, so too will their shareholders.

Linn Energy, LLC (LINE), an independent oil and natural gas company, engages in the acquisition and development of oil and gas properties.  The master-limited partnership offers a generous 7.4% yield, with a quarterly distribution of $0.725 per share.  The dividend has increased 9.75% in the past year.  LINE is a best in class upstream MLP.  Distribution growth to accelerate as it integrates acquisitions & develops high-return Granite Wash program.  LINE is positioned to capitalize on acquisition opportunities owing to low commodity price environment.  Accretion from these, which LINE “locks-in” upfront via hedging, should drive LT growth.  LINE is projected to increase EPS by 30% next year.

DCP Midstream Partners, LP (DPM) engages in gathering, compressing, treating, processing, transporting, storing, and selling natural gas in the United States.  The master-limited partnership offers a 6.31% yield, with a quarterly distribution of $0.66 per share.  The dividend has increased 5.6% in the past year.  DPM is a high growth NGL dropdown play.  Entering transformative period, as it will acquire $3b of assets from sponsor.  Dropdowns along with additional organic growth will create integrated NGL midstream platform & drive distribution growth to high-single digits.

NuStar Energy L.P. (NU) engages in the terminalling, storage, and transportation of petroleum products primarily in the United States, Canada, Mexico, the Netherlands, St. Eustatius in the Caribbean, the United Kingdom, and Turkey.  The master-limited partnership offers a generous 8.45% yield, with a quarterly distribution of $1.095 per share.  This is a deep value, turnaround story for this crude oil storage & transport MLP.  NU is sowing the seeds for a recovery in distribution growth to the low-single digits.  We believe the recent increase in organic growth capex is sustainable given the number of low cost, high return project opportunities around its assets.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States, Canada, and Gulf of Mexico.  The master-limited partnership offers a 4.87% yield, with a quarterly distribution of $0.635 per share.  The dividend has increased 6.28% in the past year.  EPD is the largest energy MLP with access to most prolific natural gas, NGL & crude oil plays in US.  Despite its large size, $7.6B of cap ex projects support 5-6% distribution growth per year for next several years with 80% revenues expected to be fee-based by 2013.

Plains All American Pipeline, L.P. (PAA) engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquid petroleum gas (LPG) products in the United States and Canada.  The master-limited partnership offers a 5.09% yield, with a quarterly distribution of $1.065 per share.  The dividend has increased 9.8% in the past year.  PAA is the largest oil transport and storage MLP with a presence in most leading oil shale plays and major storage positions at strategic oil pipeline intersections.  Approximately $5B of organic capex thru 2015 to serve expected increase in US crude production.  Its distributions should grow high single digits the next few years.

The New Dividend Growth Superstar Series

It is easy to just run a stock screen looking for good dividend stocks and find a few worth evaluating for addition to your portfolio.  Many investors have had success by buying dividend stocks and compounding their returns over time.  This will generally bring you back to the classic blue chip stocks.  These stocks are consistent and steady performers.  However, did you ever wonder what these stocks produced when they were younger such as 25 years ago?  Yeah, these types of stocks made many millionaires.

So if you want to follow a similar path, where would you start today?  I have an idea to identify stocks that have performed well in the past 5 years.  I am looking at 5-year growth rates in revenue, EPS, cash flow and book value.  The real superstar stocks will dominate these metrics and have cash to share with owners.  To make my list, each stock must have at least a 10% 5-year growth rate in each metric and payout a rising dividend during this period.  It is these stocks that I call “The New Dividend Superstars.”  These are stocks that you may not think of as dividend stocks. But in a few years your yield on cost will be much higher than you realize.  Lastly, you will avoid the dividend bubble in current high yield stocks.  It will take several posts to discuss stocks on this list.  So let’s get started.

CF Industries Holdings, Inc. (CF) through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide.  CF has been on a ride with a 31% price increase year to date.  CF has a very low yield of 0.84% but it has a 5-year dividend growth rate of 83%.  As for the metrics, CF has a 5-year EPS growth rate of 105% with a 5-year cash flow growth of 72%.  Revenue growth over 5 years was 25% and book value 37%.  Fertilizer stocks are moving higher after the government reported greater than expected damage to corn crops.  This should help to sustain the growth of CF in the coming quarters.

AZZ Incorporated (AZZ) is a manufacturer of electrical products and a provider of galvanizing services.  AZZ is up 43% year to date following great Q1 earnings.  The company posted Q1 earnings of $1.26 per share, compared with the prior year period’s $0.75. Excluding non operational income and expense items, earnings per share was $1.02. The Capital IQ consensus estimate was $0.81 EPS.  Revenues were $127.1 million, compared with $114.33 in the same quarter last year. Analysts were looking for $122.82 million in revenues.  AZZ declared a 2 for 1 stock split of the Company’s Common Stock in the form of a 100% stock dividend, payable on July 30, 2012 to shareholders of record as of July 16, 2012.

AZZ is a small stock with a market cap of only $821 million.  AZZ has a 5-year EPS growth rate of 12% with a 5-year cash flow growth of 18%.  Revenue growth over 5 years was 12.5% and book value 19%.  AZZ has a dividend yield of 1.57% that has a 5-year dividend growth rate of 67%.  AZZ has a payout ratio of 26%.

Herbalife (HLF) is a global nutrition company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle.  HLF got hammered in May on speculation that David Einhorn of Greenlight Capital would short the stock.  This never happened when Greenlight released their new positions.  This creates a great opportunity to buy this growth stock $20 cheaper with a higher dividend yield.  HLF reported first quarter net sales of $964.2 million, a 21 percent increase driven by a 24 percent increase in volume points compared to the prior year period. For the same period, the company reported net income of $108.2 million, or $0.88 per diluted share, reflecting an increase of 22 percent and 24 percent respectively compared to the adjusted first quarter 2011 net income of $88.7 million and $0.71 per diluted share.

HLF recently received seven new retail licenses to expand sales in China.  HLF plans to buy back nearly $428 million of its own shares after seeing its stock drop to complete a $1 million buyback plan.  HLF is a mid cap stock with a market cap of $5.58 billion.  HLF has a 5-year EPS growth rate of 28% with a 5-year cash flow growth of 22.8%.  Revenue growth over 5 years was 13% and book value 14%.  HLF has a dividend yield of 2.43% that has a 5-year dividend growth rate of 64%.  HLF has a payout ratio of 25%.

Low Beta Dividend Stocks for an Uncertain Market

As the markets continue to show uncertainty and a lack of capitulation, investors are looking for a place to hunker down.  The best place at this time is in low beta stocks with dividend yields (defensive stocks) to support the share price.  I had identified 5 stocks that are up in price the last 4 weeks and have a bullish outlook for when the market rallies.  Here are 5 stocks to consider:

Tobacco operator Altria Group (MO) seems to do well in these types of markets.  It is up 4.9% over the last 4 weeks.  It has a low beta of 0.25 with a dividend yield of 4.91%.  MO has an equity summary score of 7.4 out of 10 for a Bullish outlook.

Low cost retailer Wal-Mart (WMT) shines when there is a slow economy.  WMT is up 14% in the last 4 weeks.  It has a beta of 0.33 and a dividend yield of 2.35%.  WMT has an equity summary score of 8.4 out of 10 for a Bullish outlook.

Telecom giant AT&T (T) is a steady as they go in this type of market.  AT&T is up 5.4% in the last 4 weeks.  It has a beta of 0.57 and a dividend yield of 5.03%.  AT&T has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.

Retailer Target Corp (TGT) has been performing great this year.  TGT is up 5.13% in the last 4 weeks.  It has a beta of 0.58 with a dividend yield of 2.06%. TGT just announced a 20% increase in its dividend.  TGT has an equity summary score of 9.2 out of 10 for a VERY Bullish outlook.

Pharmaceutical giant Bristol-Myers Squibb (BMY) is a solid dividend stock.  BMY is up 3.73% in the past month.  It has a beta of 0.41 with a dividend yield of 3.97%.  BMY has an equity summary score of 9.1 out of 10 for a VERY Bullish outlook.

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