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It’s Raining Dividends in the Energy Sector

As more companies are increasing their dividends to reward shareholders, the energy sector seems to be near the top.  As I always do, I have listed the energy companies with recent dividend increases with a Bullish or better outlook.  Many of the listed energy companies have additional news included that is relevant to why these stocks are portfolio candidates.

The board of directors of Magellan Midstream Partners, L.P. (MMP) has significantly increased the partnership’s quarterly cash distribution to 94.25 cents per unit for the period April 1 through June 30, 2012, representing the 41stdistribution increase since its initial public offering in 2001.  The second-quarter 2012 distribution is 20% higher than the second-quarter 2011 distribution of 78.5 cents per unit and represents a 12% increase over the first-quarter 2012 distribution of 84 cents.  Looking ahead, MMP is now targeting distributions for full-year 2012 that are 18% higher than 2011, with the goal of raising distributions an additional 10% for 2013 as our future results are expected to benefit from additional growth projects coming online.

Bottom line:  MMP has a dividend yield of 4.82% with a 5-year average dividend growth rate of 8.87%. MMP has an equity summary score of 7.1 out of 10 for a Bullish outlook.

Oil refinery operator Marathon Petroleum (MPC) raised the octane on its quarterly dividend payment by 40% to 35 cents per share. The new payout will be made on Sept. 10 to shareholders of record as of Aug. 16.  MPC is pursuing a spin out of its pipeline and logistics business, MPLX LP. The company, which was formed in March by Marathon Petroleum, filed plans in July for an offering of roughly $365 million of its common units to raise funds for expansion and other purposes.  According to the filing, Marathon Petroleum (MPC) intends for MPLX to be the primary growth vehicle for the petroleum refiner and marketer’s midstream business.  Marathon is growing its retail business. Speedway acquired 87 GasAmerica locations during the second quarter and earlier this month completed the acquisition of 10 Road Ranger locations.

Bottom line:  MPC has a dividend yield of 2.95%. MMP has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.

Vanguard Natural Resources, LLC (VNR) announced that its board of directors has declared a cash distribution attributable to the second quarter of 2012 of $0.60 per unit ($2.40 on an annual basis) payable on August 14, 2012 to unitholders of record on August 7, 2012. This represents an approximate 4.3% distribution increase from the second quarter of 2011 and a 1.3% distribution increase from the first quarter of 2012.  VNR reported that on June 29, 2012 it consummated the previously announced acquisition of natural gas and liquids assets from Antero Resources for an adjusted purchase price of $434.4 million, subject to customary final post-closing adjustments. The effective date of the acquisition is April 1, 2012 with the transaction being immediately accretive to distributable cash flow.

Bottom line:  VNC has a dividend yield of 8.39%. MMP has an equity summary score of 7.2 out of 10 for a Bullish 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.

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