-- Energy limited partnerships are bought by investors for the high dividends, and the IPO calendar features two entries to the field this week:

Inergy Midstream



Mid-Con Energy Partners

(MCEP) - Get Report


Inergy Midstream is seeking to raise $320 million through the sale of 16 million units for $19-$21 each. The company is targeting an annual dividend yield of 7.4%. IPO Desktop President Francis Gaskins likes the presence of a strong parent in

Inergy LP


, and notes that both revenue and income paid to partners have been increasing.

The yield target is comparable to established players like

Kinder Morgan


, which pays 5.9%, and

Energy Transfer


, which is higher at 8.1%.

Potential investors should be aware though that the parent receives 50% of the excess cash distributions. Inergy Midstream was formed by the parent to own, operate and acquire midstream assets. Its focus is on natural gas located in the Northeast region of the U.S., namely the Marcellus Shale, which is predominantly in Pennsylvania and New York.

Inergy Midstream owns and operates four natural gas storage facilities, and Gaskins believes the stock could edge up over time.

Mid-Con Energy Partners

(MCEP) - Get Report

is expecting to pay a 9.5% dividend. The company is seeking to raise $108 million through the sale of 5.4 million units for $19-$21 each, but Gaskins is skeptical.

Mid-Con has been a loss maker over the past two years, and that could make meeting the yield target a challenge. In fact, the very first bulletpoint in the IPO's list of risk factors says they may not be able to make the dividend payments.

Plus, the public unit holders do not have a priority right to receive distribution and are not entitled to receive any payments in arrears. The unit holders also have no say over additional shares, so the priority owners could issue more shares and dilute the unit holders.

"Mid-Con is a poster child of how a private equity backer can try to take advantage of public shareholders," says Gaskins, referring to Yorktown Partners, which does have extensive experience in oil and gas.

The firm will still own 49% of the company after the offering, but Gaskins sees another drawback, noting Yorktown could own other companies that compete against Mid-Con. Another issue is that while Mid-Con is calling itself a limited partnership, the company's expected reserve life is limited to 20 years, making the company look more like a royalty trust.

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Written by Debra Borchardt in New York.

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