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Nustar: Rising Star Among Mlps

 May 02, 2012 11:45 AM

by Brian Hicks, editor Wealth Advisory

NuStar Energy (NS), our income stock of the month, is based in Houston, but its business interests range from Texas to the Netherlands and Turkey.

This relative unknown MLP is focused on oil and transportation operations via pipelines. The company buys refined oil products like gasoline and resells them; it also refines crude oil into asphalt and other refined products.

NuStar also has oil storage facilities. As of December 31, 2011, the company had 66 terminals and storage facilities, with 84.6 million barrels of storage capacity.

NuStar owns 5,480 miles of refined product pipelines in Texas, Oklahoma, Colorado, New Mexico, Kansas, Nebraska, Iowa, South Dakota, North Dakota, and Minnesota – and 940 miles of crude oil pipelines... plus it has two asphalt refineries and a fuels refinery.

In total, NuStar has 8,417 miles of pipeline and can store 98 million barrels of oil. NuStar was founded in 1999. But best of all for investors, the company has raised its distributions to shareholders for 11 years running.

In 2011, the distribution was $4.74 a share, up from $4.43 a share in 2010. With that type of growth, NuStar is an excellent choice for the dividend investor. What's more, the stock appears undervalued, as it trades at just 0.6 times revenue.

The company can be expected to grow earnings at roughly 10% a year, so the forward P/E of does not look expensive, either.

For a 12-month price target on NuStar, we will take the conservative route and simply project the current earnings onto next year's projected earnings.

That gives a 12-month price target of $67, which is 17% above the current price. And if you add in the dividend, we're talking about a 24% total gain over the next 12 months. 

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