by Roger Conrad, contributing editor Personal FinanceEnergy Transfer Partners LP (
ETP),
Linn Energy LLC (
LINE) and
SeaDrill (
SDRL) are are once-popular energy stocks that yield chasers have semed to abandoned.
Each
yields close to 8 percent. And their profits cover payouts comfortably,
balance sheets are solid and long-term strategies for growth are
intact.
Energy Transfer Partners, which has built an impressive portfolio of
midstream energy assets in key shale oil and gas basins, has traded at a
discount to its peers for several years because of its flat
distribution.
Management has opted to invest in growth projects instead of increasing the MLP's quarterly payout.
The firm's $5.3 billion acquisition of Sunoco adds oil pipelines to a
portfolio focused on assets that handle natural gas and natural gas
liquids. Management expects the deal to boost distributable cash flow.
The
stock has tumbled by 13 percent since May 1 and now yields almost 8.2
percent. During the first quarter, the MLP generated enough DCF to cover
its distribution 1.58 times—a huge margin of safety.
Investors
who buy the stock now will lock in a yield of more than 8 percent and
add exposure to future upside when the MLP hikes its quarterly
distribution. Buy up to $50.
Linn Energy has raised its
distribution twice in the past 12 months. Nevertheless, the upstream
limited liability company's units still yield near 8 percent, even
though an extensive hedge book covers all of the firm's expected natural
gas production through 2017 and all of its oil output through 2015.
Management
expects the firm to grow its production by 65 percent in 2012 and to
generate enough cash flow to cover its distribution more than 1.2 times
in the back half of the year. Linn Energy LLC rates a buy up to 40.
Many
investors gravitate toward SeaDrill because of its 9.7 percent dividend
yield. But you shouldn't overlook the near-term and long-term growth
trends under way in the market for ultra-deepwater rigs.
SeaDrill secured a handful of impressive fixtures for its drilling rigs during the first quarter of 2012.
More
important, management expects near-term supply limitations in the
ultra-deepwater segment to keep dayrates elevated and noted that
customers are already approaching the firm about extending contracts
that expire in 2013 and 2014. Buy SeaDrill up to 45.