3 favorite energy MLPs

These master limited partnerships offer an average yield of 5.6%.

By TheStockAdvisors Jan 30, 2012 1:57PM
Image: Elevated view of freight cars with coal © Joseph Sohm-Visions of America/Photodisc/Getty ImagesBy Stephen Leeb, The Complete Investor

In my view, master limited partnerships (MLPs) are probably the best hedge against rising energy prices.

Three favorites are Penn Virginia Resource Partners (PVR), ONEOK Partners (OKS), and Plains All American Pipeline (PAA).

Of these, Penn Virginia is the standout. With a yield of 8% and growth above 5%, it presents an especially compelling value.

Perhaps a slight risk with Penn Virginia is that a portion of its income stream is tied to royalties from the coal business. But while these royalties are dependent on coal prices, they are immune to regulatory changes.

ONEOK gets high marks for its focus on pipelines and storage facilities and on natural gas liquids (NGL), which have become a critical aspect of shale gas production. Capturing these liquids has become increasingly necessary to offset the growing costs of shale drilling. Thus NGL production is likely to grow rapidly over the next several years, boosting ONEOK's business.

Plains All American Pipeline is a winner because of its role in the oil market. Several projects promise to increase its oil pipeline capacity.

In addition, the company stores natural gas, an area that should benefit handsomely if natural gas prices, as we expect, rise over the next several years.

Of course, the most notable characteristic of these three favorites is their average yield of 5.6%. That income, along with projected average growth of more than 5%, adds up to long-term total returns that could approach 11%.

Even if you're not particularly income-oriented, this kind of total return in an economy that promises to remain stressed (to say the least) should have tremendous appeal.

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