While the diversification benefits of investing in fixed income securities are significant over time, it is difficult to justify investing in bonds in the current environment with yields expected to rise and inflation eating away at everything. nominal yield. Contrary to popular belief, investors still have the opportunity to create a reliable stream of income from stock markets. There are several dividend strategies that the best investors incorporate into their investment mix, including blue-chip, dividend-paying stocks, real estate investment trusts (REITs), and master limited partnerships (MLPs).
Investing in companies that have a history of increasing dividends can be a very reliable indicator of future earnings growth. Corporate directors know the details and financial condition of their business, including future earnings growth prospects, far better than anyone. Management will only increase dividends if it has every reason to believe that future earnings growth will be able to support higher dividend payouts. A consistent upward trend in dividends can alert investors to healthy, growing companies. We are going to focus on 3 MLPs that have consistently increased their dividends.
Due to their favorable tax treatment, this type of high-yielding, high-quality investment vehicle has been providing investors with favorable returns for many years. There are countless relatively unknown MLPs that have consistently increased their dividends over a long period of time, providing investors with high returns. MLPs do not pay income taxes and trade on major stock exchanges.
MLPs are different from other traditional investment structures – they are partnerships. A general partner is responsible for managing the MLP, and individual investors act as limited partners. MLPs must pay their profits directly to shareholders and pay much larger dividends because they pay no taxes. The income generated by the MLP is distributed among all the partners in proportion to their participation.
Compared to dividend-paying stocks, MLPs are relatively unknown and largely ignored by the financial media. MLPs are able to bypass the IRS and pass their income directly to shareholders, making them the ideal investment for individual investors.
Investing in MLPs also comes with a special tax benefit for MLP dividends, called distributions. The IRS considers 80-90% of MLP distributions to be a return of capital, which means investors can defer taxes on their gains for many years until they sell their shares. MLPs have attracted a diverse set of businesses across many industries due to their favorable tax treatment.
Below we will analyze three MLPs within the Zacks Oil & Gas – Refining and Marketing – Master Limited Partnerships industry group. This industry group is ranked in the top 7% of all industries ranked by Zacks. Energy also leads the charge in the early trading days of this year and was the No. 1 sector on the S&P last year.
Sunoco LP (SUN)
Sunoco is a master limited partnership that distributes fuel to approximately 10,000 convenience stores, independent dealers, commercial customers and distributors in more than 30 US states. Founded in 2012 and based in Dallas, TX, Sunoco also leases real estate and operates terminals on the Hawaiian Islands.
At Zacks #2 Buy shares, SUN hasn’t cut its dividend since inception; the company’s current dividend yield is 8.03%. Trading at a relatively undervalued PER of 8.35, SUN has exceeded earnings estimates in four of the past six quarters. SUN averages a positive earnings surprise of 47.31% over the past four quarters, supporting its nearly 60% rise over the past year.
Sunoco LP price, consensus and EPS surprise
SUN’s distribution networks reflect strong business and sustainable cash flow which will continue to drive the share price. Sunoco is one of the largest fuel distributors in the United States. SUN expects fuel volumes for 2021 to have totaled approximately 7.75 billion gallons, compared to 7.09 billion in 2020.
Analysts covering SUN have raised their annual earnings estimates by 1.1% over the past 60 days. The Zacks consensus estimate for 2021 EPS now stands at $6.41, an astonishing growth rate of 743.42% over last year. SUN is expected to release its results on February 16and.
Global Partners LP (GLP)
Global Partners is engaged in the purchase, sale, storage and transportation logistics of gasoline, distillates, petroleum, renewable fuels and propane to a wide range of customers in the New England area and At New York. Founded in 2005 and based in Waltham, MA, Global Partners has a portfolio of more than 1,548 owned, leased or supplied gas stations.
GLP has exceeded earnings estimates in 15 of the past 19 quarters. A Zacks #2 (Buy) stock, this MLP trades at a reasonable forward P/E of 13.79 and has a current dividend yield of 9.53%. GLP posted a four-quarter average profit of +13.4%, most recently beating +38.71% when the company generated EPS of $0.86 in September. GLP has climbed over 60% in the past year.
Global Partners LP award, consensus and surprise EPS
In 2022, GLP’s revenue is expected to increase by 25.53% compared to 2021. Over the past 60 days, earnings estimates for next year have increased by 28.68%. The Zacks consensus estimate for 2022 EPS stands at $1.75, which would represent a growth of 56.25% over last year. GLP is expected to announce its quarterly results on March 4and.
Phillips 66 Partners LP (PSXP)
Phillips 66 Partners is an energy company that owns, operates, develops and acquires midstream assets. The Company offers transportation, processing, storage and fractionation of crude oil, petroleum products and natural gas liquids. PSXP was founded in 2013 and is based in Houston, TX.
PSXP has never decreased its dividend since its creation; the current yield of the MLP is 9.22%. The company is relatively undervalued, trading at a PER of 9.24. PSXP recently reported EPS of $1.00 in October last year, a positive surprise of 1% from consensus. The stock is up nearly 67% over the past year.
Phillips 66 Partners LP Price, Consensus and EPS Surprise
With a Zacks #2 ranking, Phillips 66 Partners has the least exposure to commodity price fluctuations as it generates stable fee-based revenue under long-term contracts from its diversified energy asset base. intermediaries across the United States. The partnership’s cash flow is very stable and predictable, which should further support its share price.
The Zacks consensus estimate for 2022 EPS stands at $4.11, which would translate to 51.1% growth over last year. PSXP is scheduled for its next earnings report on February 4and.
Clearly, MLP investing is something every individual investor should consider. The steady stream of revenue along with the potential for price appreciation warrants further consideration of adding these MLPs to your portfolio.
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