Teekay LNG: High yield and growth
This shipping stock offers a pure play on rising global demand for liquid natural gas.
By Elliott Gue, Energy and Income Advisor
When natural gas is cooled to minus 260 degrees Fahrenheit at a liquefaction facility, the fuel condenses to roughly 1/600th of its original volume, facilitating overseas transport in specially designed ships.
Japan and South Korea have traditionally accounted for the bulk of global LNG demand. In coming years, we expect the global LNG market to expand significantly, with China and other emerging markets in Asia driving much of the upsurge in demand.
For investors seeking pure-play exposure to rising demand for LNG, we prefer shipping companies that own fleets of LNG carriers, especially conservatively run names that boast ample long-term contract coverage and reliable distributions.
Teekay LNG Partners LP (TGP) owns a fleet of 27 ships that transport LNG, five vessels that carry liquefied petroleum gas (LPG) and 11 conventional oil tankers.
All its existing ships are contracted under long-term time charter arrangements at fixed day-rates. The MLP's LNG carriers have no impending fixture expirations through 2015, while the average outstanding contract for its LPG and conventional oil tankers stands at 15 years and 10 years, respectively.
Although the unit price of the publicly traded partnership has lagged peers that have more exposure to the spot market, we prefer the MLP's conservative positioning over the next few years.
Not only would Teekay LNG Partners' cash flow be insulated from near-term weakness in the spot market, but management also sees opportunities to acquire vessels from marginal shipowners that made ill-advised bets on short-term tightness in the spot market.
With a distribution yield of 7.3% that's backed by cash flow from solid, long-term time charters and ample liquidity to take advantage of future growth opportunities, Teekay LNG Partners LP rates a buy up to $39 for conservative investors seeking steady income.
More from TheStockAdvisors.com
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
The market's cheap money addiction is laid bare. No one knows how it will end.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.