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The Profit's In The Pipeline

Posted: Aug 03, 2009 10:02 AM by Aryeh Katz

Tickers in this Article: TPP, EPD, OKS, OKE, AHD

Pipelines have been on a tear lately, rising as a group over 30% in the last three months. For many investors, this came as a surprise. Utilities in general are considered to be defensive investments and don't generally lead the herd either on the upside or the down.

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In fact, it's usually their big dividends that attract buyers to utility stocks. The income is a source of security - as is the knowledge that the downside is protected because of the hefty yield. That said, it stands to be corrected: utilities - and pipelines in particular - will have their day in the sun.

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The Whole World in his Hands
Atlas Pipeline Holdings L.P. (NYSE:AHD) is one company in the industry that has seen tremendous gains of late. This Master Limited Partnership is well above its 52-week lows of a mere $0.77, trading now at $3.45. That's a rise of 350% in just four months. And the stock still pays investors an annual dividend of 7%. Atlas trades with a price-to-book ratio of 0.2 and a price-to-sales of 0.1.

Oneok Inc. (NYSE:OKE) is a natural gas distributor with clients in Oklahoma, Kansas and Texas. The company's stock is up nearly 80% since bottoming in March and pays a very healthy 5.2% dividend. The P/E ratio on the stock is 12, which was enough for investing guru David Dreman to establish a position in the company last month with over 100,000 shares.

Common Stock vs. Master Limited Partnership
Oneok also manages the Master Limited Partnership, Oneok Partners L.P., (NYSE:OKS) which should not be confused with the parent company. Oneok has increased its quarterly dividend every year for the past seven years, including this past week, when it tacked an additional 5% on to the annual yield.

Enterprise Products Partners L.P. (NYSE:EPD) also has an enviable history of dividend hikes. The company has raised the quarterly distribution 29 times since its IPO in 1998 and for 20 consecutive quarters to date. This qualifies it as an S&P 'Dividend Achiever', an accolade accorded to businesses with a record of at least a decade of raising their annual payout.

Currently, Enterprise Products pays 7.9% annually and trades with a P/E of 17. The shares are up over 60% since last November. In recent news, EPD just closed a deal to merge with TEPPCO Partners L.P. (NYSE:TPP) thereby adding an additional $3 billion worth of market cap to the existing company.

The Wrap
With the pipeline industry surging as it is, investors might want to check further into the above three issues, particularly since they still offer attractive yields and are enjoying new found favor with the investing public at large. (To learn more, check out The Industry Handbook: The Oil Services Industry.)

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By Aryeh Katz

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