Master Limited partnerships (MLPs) are a hybrid of limited partnerships and public corporations. These companies have a business structure that resembles a limited partnership company, but their shares are traded on stock exchanges. General partners of an MLP are typically the founders and CEOs of a company responsible for its day-to-day operations, while limited partners are generally the shareholders who purchase stocks in the MLP. While MLPs usually operate as public limited companies, they are taxed as partnerships. This is beneficial because MLPs are not required to pay corporate taxes on their operating profits. The limited partners’ earnings are taxed as personal income per their respective tax brackets. However, for a business to qualify as an MLP, 90% of its revenues must be generated from natural resources and/or real estate businesses.
MLPs represent a profitable investment opportunity currently given President Biden’s desire to increase the corporate tax rate by seven percentage points to help fund his $2 trillion infrastructure spending proposal. Though most MLPs are a slow growth opportunity due to their capital-intensive operations, they generally offer a stable ROI on operations. With Treasury yields currently trailing recent highs, MLPs form an ideal alternative for fixed-income investors, given their high yields on earnings.
Companies such as Teekay LNG Partners L.P. (TGP), Höegh LNG Partners LP (HMLP) and Golar LNG Partners LP (GMLP) are among the most profitable MLPs, given their higher-than-industry earnings yields. And because benchmark Treasury yields remain volatile, investing in these stocks is expected to provide stable returns on investment.
Teekay LNG Partners L.P. (TGP)
TGP is a marine transporter of crude oil, liquified natural gas and liquified petroleum gas. It operates through long-term contracts with fixed-rate charters and energy and utility companies worldwide. As of April 15, TGP’s total transport and cargo ships include 47 LNG carriers, 23 mid-size LPG carriers, and seven multi gas carriers. The company also owns a 30% stake at a regasification terminal.
TGP’s voyage revenues have increased 3.5% year-over-year to $154.08 million for the fourth quarter ended December 31, 2020. Its non-GAAP adjusted EBITDA increased 3.3% from its year-ago value to $190.23 million. Its non-GAAP net income increased 19.1% from the same period last year to $59.98 million, while its EPS rose 8.9% year-over-year to $0.61.
TGP increased its common unit cash distribution by 15% to $0.2875 for its fiscal first quarter ended March 31, 2021. Its 19.39% non-GAAP forward earnings yield is 144.2% higher than the industry average 7.94%. The company’s forward operating earnings yield and dividend yield of 20.9% and 0.07%,respectively, compare favorably with industry averages. In addition, the company’s 47.82% trailing-12-month free cash flow yield is significantly higher than the industry average10.35%.
Analysts expect TGP’s EPS to rise 3.4% from its year-ago value to $0.60 in the first quarter, ended March 2021. Furthermore, the company beat the Street’s EPS estimates in three of the trailing four quarters. Shares of TGP gained 39.3% over the past year, and 27.8% year-to-date.
TGP has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
TGP has a B grade for Quality, Growth, and Stability. It is ranked #2 of five stocks in the A-rated MLPs – Gas industry. In addition to the grades we’ve highlighted, one can view TGP Ratings for Momentum, Sentiment, and Value here.
Click here to view the top-rated stocks in the MLPs – Gas industry.
Höegh LNG Partners LP (HMLP)
Based in Bermuda, HMLP operates LNG carriers and regasification units (FRSUs) for floating storage of LNG. The company operates through three segments: Majority held FRSUs, Joint Venture FRSUs and Other. As of March 31, the company owned five FSRUs.
HMLP’s 10.26% non-GAAP forward earnings yield is 29.2% higher than the industry average 7.94%. And its 13.96% trailing-12-month free cash flow yield compares favorably with the industry average 10.35%. Also, the company’s forward operating yield and dividend yield of 19.14% and 0.12%, respectively, are significantly higher than industry averages.
Though HMLP’s revenues declined slightly in the fiscal year ended December 31, 2020, its annual operating income increased 6.1% from its year-ago value to $94.77 million. Its net income rose 19.7% year-over-year to $63.15 million, and its EPS came it at $1.40, up 25% from the same period last year.
The Street expects HMP’s EPS to rise 457.1% year-over-year to $0.39 in the about-to-be-reported quarter, ended March 2021. The company beat consensus EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenues to rise 2.4% year-over-year in the current quarter, ending June 2021, to $35.25 million. HMLP has gained 108.1% over the past year, and 7.8% year-to-date.
HMLP has an overall rating of B, which translates to Buy in our proprietary rating system. The stock has a B grade for Growth, Stability, and Quality. It is ranked #3 in the same industry.
In total, we rate HMLP on eight different levels. Beyond what we’ve stated above, one can view HMLP Ratings for Sentiment, Momentum, and Value here.
Golar LNG Partners LP (GMLP)
GMLP operates long-term LNG charters and floating storage regasification unit (FSRU) charters in Indonesia, Brazil, Jordan, Jamaica, Kuwait, and UAE. It owns approximately six FSRUs and more than four long-term time charters. The company was acquired by New Fortress Energy, Inc. yesterday, at an estimated $1.90 billion enterprise value.
GMLP’s 23.94% non-GAAP forward earnings yield compares favorably with the industry average of 7.94%. Its 50.96% forward operating earnings yield is 295.3% higher than the industry average of 12.89%, while its trailing-12-month free cash flow yield of 55.64% is 437.5% higher than the industry average 10.35%.
GMLP’s operating income increased slightly sequentially to $71.69 million in the fiscal fourth quarter ended December 31, 2020. Its net income was $20.72 million, up 19.3% from the prior-year quarter. Its gains from derivatives instruments increased 141.5% from the same period last year to $436,000.
A consensus EPS estimate of $0.20 for the first quarter, ended March 2021, represents a 141.7% improvement year-over-year. Also, GMLP’s EPS is expected to rise 228.6% in the current year to $0.92. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenues to decline marginally in the about to be reported quarter but rise 3.4% in fiscal 2022 to $293.04 million. GMPL stock has rallied 69.1% over the past year, and 37.6% year-to-date.
GMLP has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Quality and Stability. It is ranked #1 in the MLPs – Gas industry. We have also graded GMLP stock for Sentiment, Growth, Value, and Momentum. Get all GMLP ratings here.
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TGP shares were trading at $14.53 per share on Friday afternoon, up $0.04 (+0.28%). Year-to-date, TGP has gained 29.40%, versus a 12.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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