Teekay LNG: High yield and growth

This shipping stock offers a pure play on rising global demand for liquid natural gas.

By TheStockAdvisors Nov 21, 2012 11:09AM
Kevin Phillips Digital Vision age fotostock

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

Tags: oilTGP
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. 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 Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
282
282 rated 2
455
455 rated 3
624
624 rated 4
642
642 rated 5
665
665 rated 6
610
610 rated 7
460
460 rated 8
287
287 rated 9
167
167 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
VZVERIZON COMMUNICATIONS9
More

VIDEO ON MSN MONEY

ABOUT

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.