Saturday, February 14, 2009

Stock Screen: Oil and Gas Transport Plays

BusinessWeek has a great screen of oil and gas transportation stocks by Beth Piskora. These stocks have held up well over the last couple of years and have been my top performers.

Stock Screen: Oil and Gas Transport Plays
Quick: name an industry group where the average dividend yield is hovering around 11%. If you guessed utilities, real estate investment trusts (REITS), or banks, you're wrong. But if you guessed oil and gas transportation companies, that would be correct.

Most oil and gas pipeline companies are set up as Master Limited Partnerships (MLPs), which means they must, by law, distribute their earnings, just like REITs do. That makes them good choices for income-focused investors, in our view.

"The distribution—or dividend—level is a very important driver of investor interest in this group," explains Tanjila Shafi, a Standard & Poor's equity analyst. "The companies know this, so they are working very hard not to cut the payouts. They are doing other things like cutting capital expenditures to preserve capital, just to maintain the distribution levels."

Shafi recommends only six MLPs, and believes all six should be able to maintain their distribution levels this year. She also believes that they, as a group, are the strongest companies in the industry, have good balance sheets, and are more likely to be able to tap the capital markets. She notes investors may find other MLPs with higher dividend yields, but recommends for purchase only these six, each of which carries an S&P investment ranking of 4 STARS (buy) or 5 STARS (strong buy).

Company Ticker S&P STARS Rank (2/12/09)
Energy Transfer Partners ETP 4
Kinder Morgan Energy Partners KMP 5
Magellan Midstream Holdings MGG 4
NuStar Energy NS 4
Oneok Partners OKS 4
Plains All American Pipeline PAA 4


Disclosure: The Div Guy owns shares of KMP and OKE which owns part of OKS at the time of this post.

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