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Selectively Bullish on Master Limited Partnerships

By Roger S. Conrad on Dec. 31, 2017

Fundamentals for midstream MLPs generally appear bullish in 2018. Third-quarter earnings season underscored the extent to which the group has followed Enterprise Products Partners’ lead and sought to limit equity issuance to focus on self-funding growth opportunities.

At the same time, many MLPs have taken their medicine, slashing distributions and shoring up their balance sheets by monetizing noncore assets. This process hasn’t entirely run its course, with Energy Transfer Partners LP (NYSE: ETP) and others still leaning against the winds of change. Contract expirations and dilutive conversions of preferred units will also present challenges for some names in coming years. However, many partnerships have taken the necessary measures to put themselves on a sustainable path.

Besides the prospect of outsized production growth in the Permian Basin and STACK plays, our favorites should also benefit from supportive crude-oil prices and the highest gas-processing margins in years.

This issue of Energy & Income Advisor reviews the headwinds buffeting MLPs, the promise of the new year, trends in mergers and acquisitions, our top picks, pockets of underapprecated risk, and some under-the-radar opportunities. We’ve also updated most of the comments in our MLP Ratings table.

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