In looking over the impact of the 2014-2015 oil price collapse, we made an interesting discovery. When there is a glut in supply, pipeline and storage companies keep doing business in most cases.
Sure, there can be some impact. However, the typical business model deals with customers under contract making minimum payments even if little is shipped. Pipelines are valuable assets that are costly to produce both from a capital and regulatory standpoint.
Here are four safe MLP's with long dividend paying histories and above average current yields. Several of these have consistently growth dividends for at least 10 consecutive years and are bona fide dividend achievers.
Higher yields sometime signal trouble. In the case of MLP's, they don't have to pay federal taxes so there is more cash to distribute to shareholders. MLP's are not for everyone but selectively chosen, they might be appropriate for a spot even in some conservative retirement accounts.
Magellan Midstream Partners (MMP)
Magellan primarily transports, stores and distributes petroleum products. The partnership owns the longest refined petroleum products pipeline system in the country, with access to nearly 50% of the nation's refining capacity, and can store more than 95 million barrels of petroleum products such as gasoline, diesel fuel and crude oil. It manages operations in three sectors.
Magellan's Crude Oil Segment (11% of sales) consists of 1,700 miles of oil pipelines and storage ranging from the Upper Midwest to the Texas Gulf coast. Refined Products (80%) operates a 9,600 mile pipeline system with connecting terminals for storage from the Northeast to Georgia. Marine Storage (9%) amounts to five terminals located along the Gulf coast with the ability to store about 26 million barrels.
The company's size and strategic positioning in the U.S. energy belt has given the company the ability to take advantage of growing domestic energy production for over a decade. In the key refined products segment the majority of income comes from either contract agreements with major energy suppliers or from rates published with Federal regulators. The price of crude oil plays a role in determining rates. However, the overall balance of supply/demand is the overriding factor.
Dividends have been paid every year since Magellan's founding in Tulsa, Okla., in 2000. The current $3.28 per share payout offers an above average 4.71% yield.
Over the past decade the dividend has compounded at an 11.5% average rate and 15% over the past five years. Based on the presentation of Non-GAAP measures that the company uses to manage its business, the payout ratio over the past five years has ranged between 71%-and-97%. In 2015 this ratio was 81%, suggesting the company has sufficient cash to operate it business while providing ample income to dividend investors.