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Thursday July 05, 2012
8 percent club: Energy trio
by Roger Conrad, contributing editor Personal Finance  Energy Transfer Partners LP (ETP), Linn Energy LLC (LINE) and SeaDrill (SDRL) are are once-popular energy stocks that yield chasers have semed to abandoned.Each yields close to 8 percent. And their profits cover payouts comfortably, balance sheets are solid and long-term strategies for growth are intact. Energy Transfer Partners, which has built an impressive portfolio of midstream energy assets in key shale oil and gas basins, has traded at a discount to its peers for several years because of its flat distribution. Management has opted to invest in growth projects instead of increasing the MLP’s quarterly payout. The firm’s $5.3 billion acquisition of Sunoco adds oil pipelines to a portfolio focused on assets that handle natural gas and natural gas liquids. Management expects the deal to boost distributable cash flow. The stock has tumbled by 13 percent since May 1 and now yields almost 8.2 percent. During the first quarter, the MLP generated enough DCF to cover its distribution 1.58 times—a huge margin of safety. Investors who buy the stock now will lock in a yield of more than 8 percent and add exposure to future upside when the MLP hikes its quarterly distribution. Buy up to $50. Linn Energy has raised its distribution twice in the past 12 months. Nevertheless, the upstream limited liability company’s units still yield near 8 percent, even though an extensive hedge book covers all of the firm’s expected natural gas production through 2017 and all of its oil output through 2015. Management expects the firm to grow its production by 65 percent in 2012 and to generate enough cash flow to cover its distribution more than 1.2 times in the back half of the year. Linn Energy LLC rates a buy up to 40. Many investors gravitate toward SeaDrill because of its 9.7 percent dividend yield. But you shouldn’t overlook the near-term and long-term growth trends under way in the market for ultra-deepwater rigs. SeaDrill secured a handful of impressive fixtures for its drilling rigs during the first quarter of 2012. More important, management expects near-term supply limitations in the ultra-deepwater segment to keep dayrates elevated and noted that customers are already approaching the firm about extending contracts that expire in 2013 and 2014. Buy SeaDrill up to 45. Learn more about this financial newsletter at Personal Finance. Related articles: 
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