Master limited partnerships (MLPs) are interesting entities, in that they have liquidity, yet have tax benefits akin to a limited partnership. To further narrow this esoteric investment play, MLPs are typically limited to the pipeline industry, as MLPs must derive 90 percent of their income from real estate or commodities, and energy companies have both in spades.
MLPs are attractive to investors because they pay out a portion of the cash flow in the form of high dividend yields. With all the talk of the supposed “taper” that may come tomorrow, next year, or never, MLPs can seem to be a riskier investment. However, analysts feel that rates will probably not experience much volatility for the rest of the year, and MLPs will be more or less stable as we move forward.
With an eye towards safety in investing in MLPs in mind, we thought it might be interesting to explore which ones were both recommended plays, and still paid out the highest yields.
Here are the criteria we used to find the safest, most attractive small-cap MLPs on the market:
1) Must be a Small-Cap
We limited our search to MLPs worth between $300 million and $2 billion in market cap, to hopefully unearth some lesser-known plays.
2) Dividend Yield Over 10 Percent
A dividend yield over 10 percent is considered “very high” in most cases, but is pretty much a given with MLPs.
3) Analyst Recommendation of “Buy” or Better
We wanted to find the MLPs that analysts currently had an overall positive opinion of.
We found four MLPs that fit this criterion. They are:
Atlas Resource Partners, L.P. (ARP) This MLP works primarily in the Barnett Shale in Texas, the Appalachian Basin, the Raton Basin in New Mexico, the Black Warrior Basin in Alabama, and the Mississippi Lime in Oklahoma. It’s down 2.58 percent on the year to hit 20.48 a share.
Breitburn Energy Partners L.P. (BBEP) Breitburn operates principally in California, specifically the Los Angeles Basin, with scattered locations throughout the Western US, Texas, Louisiana, Florida, Michigan, and the Gulf. Breitburn is up 10.60 percent on the year to hit $18.99 a share.
LRR Energy, L.P. (LRE) 55 percent of LRR’s reserves are in the Permian Basin region in West Texas and southeastern New Mexico. This company also has reserves in Oklahoma and the Texan Gulf Coast. After a major dip in June, LRR is back up as of late. The company’s shares are up .91 percent on the year to hit $17.81 a share.
QR Energy, L.P. (QRE) QR’s reserves are located in the Permian, Oklahoma, The Ark-la-Tex region and Michigan.QR is up 8.05 percent on the year to hit $18.13 a share.