Current macroeconomic factors strongly support rising prices and demand for commodities, especially oil and gas, says Rida Morwai, editor of High dividend chances.
You need to protect your portfolio from the dangers of inflation and the weakening dollar with midstream assets – the lifeblood of the growing economy. If oil is the blood of the economy, pipelines are the lifelines.
Despite fears of regulation to bolster the climate change agenda, Warren Buffett continued to make significant investments in energy pipeline companies because he realized a crucial thing: If it gets harder to build these (pipelines), it means the existing infrastructure is much more valuable. become.
More from Rida Morwa: Collect fees from pipeline favorites
Inspired by Mr. Buffett’s investment style, we also love companies where we can sit back and collect fees, and we love some of the great opportunities in the midstream sector. We’re buying hand-over-hand from the midstream sector to add to our reliable long-term income portfolio.
Here are two high-yield midstream stocks that can help you capitalize on this commodities bull run while delivering growing returns for years to come.
Business Product Partners (EPD) owns more than 50,000 miles of pipelines for NGL, crude oil, natural gas, petrochemicals and refined products, as well as significant processing capacity assets.
The transport of NGLs, which accounts for 52% of the turnover mix, is EPD’s core activity. NGLs are essential raw materials for vital consumer products, such as plastics, which will increase demand from the growing world population.
EPD’s customers in all business divisions are essentially investment-grade or have a letter of credit. With a debt-to-EBITDA ratio of 3.5x, EPD is one of the least leveraged midstream companies and can pay for capital projects through a portion of its free cash flows retained for this purpose.
EPD currently returns 7.4% and the company has an impressive 22-year history of growing investor returns, growing at a CAGR of 7%.
Insiders own a significant 32% of EPD’s outstanding shares, which is a big plus for value investors as it gives us confidence that the management team’s interests align with those of shareholders.
A big positive is that EPD does not have an incentive distribution rights (IDRs) structure as the general partner is non-economically owned by EPD. This means that as the company grows, investors receive an increasing share of the free cash flows without having to worry about large distributions to the general partner.
EPD is now located in one of the most beautiful places. Demand for natural gas and ‘natural gas liquids’ (‘NGLs’), the main drivers of EPD’s revenues, is growing strongly. As EPD is on the cusp of a new commodity supercycle, EPD will be one of the biggest beneficiaries.
EPD will immediately benefit from filling its untapped capacity and be able to increase add-on projects. Very quickly, its strong balance sheet, key locations and footprint put it in a key position to support its rapid growth.
It is rare to find an investment worthy quality company that yields 7.4% and with a distribution that is growing every year. EPD is such a company in which you want to invest. This stock is grossly undervalued today and is a great long-term investment. EPD could be the biggest winner in your pension portfolio! Please note that EPD is a master limited partnership and issues a Schedule K-1.
Enbridge, Inc. (ENB) is North America’s largest pipeline company by enterprise value. They operate 50,000 miles of pipelines for natural gas, NGL, crude oil, petrochemicals and refined products vital to the Canadian and U.S. economies.
95% of ENB’s customers are investment grade, while 98% of the capacity is contracted. This means that the ENP has maximum reliability with minimum risk.
Looking at the company’s revenue mix, we see that 54% of its revenue comes from crude oil and liquid hydrocarbons. The company recently started a growing renewable energy business with 1,977 MW of net generation capacity.
Enbridge caries and investment-grade ratings (average BBB+), enabling investors to sleep well at night’.
Enbridge currently yields 6.9% and the company has a 26-year history of increasingly paying dividends to investors. Despite four oil crashes and two horrendous bear markets, the company has had a dividend CAGR of 10% since 1995. This is very impressive!
This is the power of Mr. Buffett’s theory of the toll booths, where vital assets can continue to be monetized for decades. The company is expanding its infrastructure network with more than C$17 in secured capital projects through the end of 2023.
The largest part of the capital expenditure relates to the expansion of natural gas transmission, natural gas storage, natural gas distribution and renewable energy projects. Enbridge will continue to expand its asset base as investors expect growing distribution in the coming years.
This is one of the safest midstream for income investors and provides recurring paychecks for your retirement accounts. Note that Enbridge is a C-Corp and will issue 1099’s (no K-1’s) at the end of the year.
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