This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Looking for Income Growth in 2014? Check These MLPs

However, price appreciation is much different. If the growth expectations for ATLS remain the same by year five (indicating it deserves to be priced at a 4% yield), an increase of 149% in income from $4 to $10 implies price appreciation of 149%. VNR's price appreciation would be roughly 22% under the same assumptions.

As with all stocks, expectations for future growth, whether it be earnings or distributions, will drive stock prices over time.

Where to Find MLP Distribution Growth

Given what we have outlined above, one method to identify those MLPs that provide the most total return potential is to calculate the implied forward return by adding current yield and distribution growth. While simplistic in its approach, this serves as a good barometer for potential total returns, all else being equal.

This simple analysis reveals something quite interesting. The sector with the lowest current yield, General Partners, provides the highest projected total return at 23.6%. The total return is almost entirely the result of distribution growth.

Must Read: Could Inventories Be Suffering an Amazon Effect?

Investors looking to capitalize on this opportunity can choose to invest in individual MLPs or use broad rules-based exchange-traded funds that focus on distribution growth. For example, the Yorkville High Income Infrastructure ETF (YMLI) has a current yield of 6.3% and average distribution growth of 6.7 % (fourth quarter year-over-year) by having more exposure to general partner and gathering and processing MLPs than its peers.

On the underlying partnership level, MLPs with cash flows that are both stable and growing provide compelling total return potential.

An example is Oneok (OKE - Get Report), a C-corp MLP general partner with a 2.7% current yield. OKE just spun off its utility business (One Gas (OGS)) and is in the process of exiting its unprofitable energy services segment. For 2014, OKE expects to pay a dividend of $2.13, which represents an increase of 40% versus 2013. The company expects to grow its dividend at a rate of 10% annually for 2015-2016, leaving OKE relatively undervalued in comparison to its peers.

Another interesting example is Energy Transfer Equity (ETE), general partner to Energy Transfer Partners (ETP), Regency Energy Partners (RGP) and Sunoco Logistics Partners (SXL).

As general partner to these three MLPs, ETE benefits exponentially from distribution growth at the underlying MLPs. In 2013, ETE announced its intentions to form a fourth MLP subsidiary to hold its Trunkline LNG export terminal project. ETE also resumed growing its distribution and announced a $1B share repurchase during the year contributing to a total return of +88% in 2013. ETE could have annual distribution growth in the mid teens over the next five years providing an attractive forward return outlook.

At the time of publication the author had positions in the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Darren Schuringa is the managing partner of Yorkville Capital.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ATLS $0.66 0.00%
OKE $20.18 0.00%
VNR $2.21 0.00%
YMLI $8.80 0.00%
AAPL $93.99 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs