The Next Big MLP Winner
America's push for energy independence has been good news for income investors.
As the U.S. strives to become energy independent by 2020, demand for strong domestic oil and gas production has never been greater. Simultaneously, new technologies such as fracking and horizontal drilling have enabled exploration and production companies to access hard-to-get shale oil and natural gas that was previously inaccessible.
The combination of new technologies and increased demand has made U.S. energy companies more flush with cash than ever before. As a result, energy stocks and master limited partnerships (MLPs) are ramping up dividends at a rapid clip.
Three energy MLPs in particular have stood out in recent years.
Williams Partners ( WPZ ), whose network of pipelines holds 14% of all natural gas consumed in the U.S., has already upped its dividend four times in the last year. In fact, the company's payout has increased every quarter since May 2010. The regular dividend increases have pushed Williams Partners' yield up to a very attractive 6.6%.
MarkWest Energy Partners ( MWE ) and Access Midstream Partners ( ACMP ) are other strong dividend growers in the energy sector. Both MLPs boast yields above 4%. And like Williams Partners, each of those limited partnerships has been upping its dividend on a quarterly basis.
MarkWest Energy, a leading provider of midstream services in the natural gas industry, has increased its dividend every quarter since February 2011. During that time, the dividend has increased 31%.
Access Midstream Partners, a natural gas producer with gas pipelines and processing facilities in 12 states, has more than doubled its dividend since February 2011.
MLPs in the natural gas sector appear particularly well positioned to continue rewarding their shareholders. U.S. natural gas production has increased 24% in the last decade, reaching nearly 30 trillion cubic feet in 2012. Production of dry natural gas - which is essentially methane - also hit a record high last year at 24 trillion cubic feet.
The production ramp-up has pushed U.S. natural gas prices to a 17-year low on an inflation-adjusted basis. That makes it a far cheaper, cleaner alternative to foreign oil. In fact, natural gas is roughly one-quarter the cost of oil on a per-unit basis. And while energy independence is the end goal, U.S. natural gas production has grown so rapidly that it may soon begin exporting to Europe and Japan.
After years of almost no natural gas exports, the U.S. Energy Department recently approved two new natural gas export facilities. U.S. natural gas companies currently derive almost none of their revenues from overseas exports. Should more facilities be approved, the increased exports would introduce a whole new avenue through which U.S. natural gas producers can grow their profits.
Even without more natural gas exporting facilities, U.S. energy companies should benefit as America distances itself from foreign oil. In June, the U.S. trade deficit - the difference between exports and imports - hit its lowest level since October 2009 in large part because of declining oil imports.
Judging by those numbers, it seems like the U.S. may yet achieve its energy independence goals.
If so, U.S. energy companies - natural gas producers and otherwise - should continue to see a boost in their cash flow. And that should mean further dividend growth from some of the country's largest energy stocks and MLPs.
That's precisely what my colleagues Ian Wyatt and Tyler Laundon will be talking about this Thursday in a live investing seminar, U.S. Energy Alert: 3 Profit Plays for 2014 and Beyond . Ian and Tyler will be discussing America's push toward energy independence - and how to profit from it.
Specifically, they'll reveal which U.S. oil fields are the best profit opportunities. Plus, they'll give away two of their top investment ideas. This live investing seminar that will take place over the phone, and will include a Q&A session.
The free event will take place this Thursday, October 3 at 2 p.m. eastern time. Space is limited - so click here to reserve your spot.