Trend: Oversold stocks with dividends may provide relative safety and income.
Mathew Emmert of Dividend Gambit recommends two master limited partnerships. Excerpts from Mathew's article on MarketWatch are below.
Do what the government doesn't... find safety - MarketWatch.
The stocks of these companies have been taking an absolute shellacking lately (even more than the overall market) for several reasons.
First, these companies have seen an immense amount of "forced selling" lately from troubled hedge funds that once considered these cash-generating beauties favorite investments, but now just see them as a source of much-needed cash.
Second, like real-estate investment trusts, or REITs, MLPs pay out most of their cashflow to shareholders, so while that's great for yield-hungry investors, it also means they tend to fund growth via debt issuance, and the frigid credit market has created fears that the lack of this source of funding will curb MLP expansion.
And third, as anyone who fills up their car is quite aware, commodity prices for things like oil and natural gas have been falling through the floor lately, and many investors don't know the important difference between which MLPs have exposure to commodity prices and which don't.
So, all of these things have combined to create a level of panic in the MLP space that can be exploited by those in the know. Two of the best firms I recently recommended to my Dividend Gambit subscribers during the brutal recent sell-off were Enterprise Products Partners (EPD) and Teppco Partners (TPP).
Both of these firms own extensive, highly profitable oil and natural gas pipeline assets and storage facilities. They have little or no direct exposure to commodity prices. They have good access to capital and strong free cash flow, which should keep them growing both their businesses and their cash payouts for some time. They've also just completed large projects that have recently become accretive to their earnings.
And finally, both firms share the same managing general partner, which is effectively headed by Dan Duncan, who is a gentleman that I consider to be one of the best and brightest in the MLP space.
Enterprise is a larger and more diverse company, which arguably adds some safety and reduces volatility, so it has a somewhat lower 9% yield at its current price (though it does have a higher rate of annual dividend growth). So, though Teppco would be my first choice among the two due to its slightly more attractive value, both firms make a great pair for any hunkered down portfolio looking for specific MLP exposure.
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