As we write this issue, the yield on 10-year US government bonds is just 2.12%, down from north of 3.2% as recently as November 2018.
Against that pay-nothing interest rate backdrop, you’d think MLPs with an average yield closer to 8% would be attracting attention from yield-hungry investors.
However, returns from MLPs have been mixed at best over the past year as investor fret about several issues including potential exposure to energy commodity prices, rising cost of capital, and MLP-to-corporation conversions.
In June each year, we conduct a detailed deep-dive analysis of the MLP industry timed to coincide with the conclusion of the annual MLP Association Conference. And we reveal the results of this analysis in the pages of Energy & Income Advisor.
This week, in Part I, we present our discussions surrounding 6 crucial, hot button “talking points” that are receiving the most attention from MLP investors these days and offer some of our top recommendations in the industry.
Around the middle of the month, we’ll be back with Part II of our Inside MLPs Mid-Year Review.
Fair value is always in the eye of the beholder. But it’s clear big money is now seeking value in energy, despite fluctuating oil prices.
The conventional wisdom is the MLP sector is dead money. That’s a mistake for several reasons.
We still smell investor panic in the air. But the trading action of the past couple days is nonetheless encouraging, as the stock market has reversed big intra-day selloffs to finish higher.
Antero Midstream Partners' (NYSE: AM) merger with its general partner is the latest "simplification deal in the MLP sector.
Dominion Energy's (NYSE: D) offer could do a lot to resolve uncertainty surrounding Dominion Midstream Partners LP's (NYSE: DM) future.
Unfortunately, we continue to see elevated risk for a number of companies, and particularly for the 13 currently on our Endangered Dividends List. For more on where the risk lies at individual midstream energy companies and MLPs, see the comments column in our now updated MLP Ratings table, including analysis of first quarter results, distribution coverage and debt-to-EBITDA figures and prospects for potential roll-up mergers. It’s posted on the Energy and Income Advisor website under the “Portfolios” tab.
It’s been a little over a year since FERC shocked the MLP industry with its decision to disallow a significant tax-related item in cost-of-service rates for interstate pipelines. That ruling, coupled with the big drop in oil prices last fall sent the industry benchmark Alerian MLP Index tumbling to its lowest levels in a decade.
The cheapest source of expansion funds is always internally generated cash. So it’s no great surprise that many energy sector management teams are still choosing to “right size” dividend distributions, rather than issue new debt and equity into what remain largely hostile capital markets.
Foresight Energy LP (NYSE: FELP) is eliminating its quarterly distribution. That follows a poor first quarter during which the coal mining MLP experienced sharp increases in transportation costs because of flooding and “an accelerated decline in export prices” for its output.
In the December 19, 2018 issue of Energy & Income Advisor “Oil: It’s Not 2014,” we took a deep-dive look at the global oil market and came to the following conclusion:
“While it’s tough to catch the proverbial falling knife or call an exact bottom in crude, we believe oil is approaching a crucial bottom and will recover into the first half of 2019. Specifically, we could see Brent rallying back over $70/bbl and WTI reaching the mid $60’s by the second quarter of 2019.
Elliott and Roger on May. 30, 2019
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