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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.

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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High Yield Stocks with Very Bullish Equity Summary Scores

The list below highlights high yield dividend stocks with a very bullish equity summary score between 9.1 to 10.  These stocks are also rated a buy or hold by S&P stock ratings.  The following is a summary of most recent research notes for the top stocks from this list.

Telecom Italia SpA (TI) – Q3 revenues were up 3.7% and EBITDA was up 0.8%, stronger than we  expected. Results improved at the Italian domestic operations where the  pace of decline eased, with revenues down 2.8% and EBITDA down 2.5%, vs.  respective Q2 declines of 5.1% and 4.8%. While we expect revenues in  Italy to fall about 2.5% in ’12, we expect operations in Brazil and  Argentina to continue to perform well. To reflect the weakening of the  Euro vs. the U.S. dollar, we lower our operating earnings per ADS  estimates $0.16 to $1.40 for ’11 and by $0.30 to $1.40 for ’12. Our  target price remains $13.
AstraZeneca PLC  (AZN) – Q3 earnings per ADS of $1.70, vs. $1.50, surpassed our $1.46 estimate.  We attribute the beat to higher than expected sales, and reductions in  interest expense and taxes. A $5B share buyback also lowered the share  count. In view of the strong Q3, we raise our ’11 ADS profit forecast to  $7.30 from $7.12. While Q4 Crestor sales are likely to be hurt by  generic Lipitor and slowing trends in Brazil, we think long-term  prospects remain favorable, aided by an expanding new drug portfolio. We  raise our target price by $2 to $52, based on revised DCF and forward  P/E assumptions.
Total SA (TOT) – We think TOT has performed well, despite flat Q3 production on a slow  ramp of new projects. TOT merged Refining/Chemicals and plans to trim  European refining. It is negotiating with labor unions to restructure  downstream in ’12. Production growth target is 2.5% in ’11, on its 12%  acquisition of Novatek. We see new volumes from Nigeria and Angola and  more aggressive exploration. We believe pending Shtokman deal will pass  when Russia implements a more competitive fiscal regime. We lift our ’11  GAAP EPS estimate $0.40 to $8.25 and ’12’s by $0.80 to $8.70. Dividend  yields 5.65%.
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.
Vodafone Group PLC (VOD) – Recent results have shown improving trends in VOD’s emerging market  growth engines India and South Africa and signs of a turnaround in its  more mature European business. We believe revenue momentum and good cost  control will enable VOD to beat its EBIT guidance for FY 12 (Mar). As we  roll forward our DCF analysis, we are raising our 12-month target price  on the ADSs by $2 to $34. Combined with an above-average dividend yield  that we see as well supported by cash flow, we view VOD as compelling.

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Quality Stocks with High Yield Dividends

With so investors seeking high yield, it’s important for income investors to find dependable high yield dividend payers that they can count on.  With projections for a slower growth economy amid historically low  interest rates, it’s now more important than ever to find these solid dividend paying companies as there are fewer places to turn to for high yielding investments without taking on unwelcomed risk.  By screening for stocks with market beating yields, double digit growth rates, above median increasing cash flows and a strong balance sheet, this screen seeks to do just that by finding those companies that could turn into long-term core holdings for an income producing portfolio.  And with a Zacks Recommendation of a Buy or at least a Hold, these stocks have the potential to become total return winners as well.

Dividend paying stocks can help you build out a well diversified portfolio.  And if projections for a slower growth economy come true, the investment vehicles with ‘something extra’, i.e., solid and dependable dividends, will become even more highly sought after as investors seek out the best total returns while keeping a watchful eye on risk.

This list is filled with high yield stocks, many above 10%, that are ranked buy or hold by Zachs Investment Research.  Some of the popular names include: FUN that is being recommenmded by Jim Cramer; FSC & MAIN that are monthly dividend payers, CXS & PMT that offer mortgage REIT yields; and several energy stocks for continuing dividends.  The table belows displays the list of high yield dividend stocks.

high yield dividend stock with high quality ratings

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Dividends from High Quality, High Yield Stocks

With so many companies being affected by the financial crisis, it’s important for income investors to find dependable dividend payers that they can count on. With projections for a slower growth economy amid historically low interest rates, it’s now more important than ever to find these solid dividend paying companies as there are fewer places to turn to for high yielding investments without taking on unwelcomed risk.  By screening for stocks with market beating yields, double digit growth rates, above median increasing cash flows and a strong balance sheet, this screen seeks to do just that by finding those companies that could turn into long-term core holdings for an income producing portfolio.

If you have not heard of TWO, then take note as this is a 9 on a 10 point scale.  Two Harbors Investment (TWO) is a holding company. The company operates as a real estate investment trust focused on investing in, financing and managing residential mortgage-backed securities (RMBS), and related investments. The company is externally managed and advised by PRCM Advisers LLC. The company’s target assets include the following: Agency RMBS, Non-Agency RMBS, and Financial assets other than RMBS, which include asset-backed securities and certain hedging transactions.

TWO is trading at $9.23 with a high dividend yield of 17%.  Yes, yields this high are scary but TWO is similar to Annaly as a mortage REIT.  EPS increased from $1.09 to an estimated $1.43 over the past 5 quarters indicating an improving growth rate. Analyst forecasts have recently been raised.  Company recently reported better than expected results.

Screening Criteria:
Dividend Yield Greater than or Equal to 5.00%; EPS Growth (Proj this Yr vs. Last Yr) – Greater than or Equal to 10.00%; P/E (This Year’s Estimate)Less than or Equal to 20.0; Cash Flow Growth Rate (TTM vs. Prior TTM) Greater than or Equal to 0.06%; Interest Coverage (Most Recent Qtr) Greater than or Equal to 3.0x; Security Price Greater than or Equal to $5.00.

 

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