3 High-Yield MLPs to Buy Amid the Crude Oil Rout

A few weeks ago, on one particularly rough day for the MLP sector, I wondered to myself who had just blown up. With even blue-chip names down 4% or more on the day, the only explanation I could come up with was that a leveraged MLP hedge fund must have “blown up” and been forced to liquidate its holdings due to margin calls, pushing down prices. Nothing else made sense. I never got an answer to that question, and I will probably never know. But when I see the continued meltdown in the MLP space, I’m still left wondering: What, exactly, are investors thinking when they dump MLPs at today’s prices? When they can get a 5% current yield or better and distribution growth of 5% to 10% per year for the foreseeable future… where exactly do they expect to find better bargains?

Hey, I get it. The collapse in the price of crude oil is scary. I wouldn’t particularly want to own an upstream exploration and production MLP like Linn Energy (LINE) in this environment. But most of the larger MLPs get most of their revenues from midstream transportation and are mostly insensitive to energy prices. And whatever modest exposure to energy prices they have right now can’t quite justify the 22% decline in the JPMorgan Alerian MLP ETF (AMJ) since early May. Today, I’m going to take a look at three midstream MLPs that have taken an unjustified beating. All pay fantastic dividends or distributions, and all are expected to see significant growth over the next several years: Enterprise Products Partners (EPD), Kinder Morgan (KMI) and Teekay Corporation (TK).

Source: Charles Sizemore

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