Increased capital investment in the sector is driving distribution growth in energy MLPs, which are expected to post a total return toward the 10% to 16% range over the next 12 months, says John D. Edwards, a Senior Vice President and Senior Equity Research Analyst for Morgan Keegan & Company, Inc.
“We are looking for a little stronger distribution growth in 2012, and as we indicated earlier, total return approximately equivalent to what we experienced in 2011. Last year, our target was a 4% to 6% distribution growth range, and again, we were close to the upper end of that range, around 6%,” he said.
Edwards likes Targa Resources Inc. (TRGP), the general partner to Targa Resources LP, which is a provider of midstream natural gas and natural gas liquid services in the U.S. He says one of the drivers in the energy MLP sector is the strong oil prices relative to natural gas, which means some of the natural gas processers are likely to do well.
“In the next couple of years, there will be a tremendous number of new projects in the liquids area, so most of the major investment going on is in things like oil storage, natural gas liquids pipelines, oil pipelines, oil terminals,” Edwards said. “There is such a shortage of pipeline capacity right now, you’re seeing companies ship oil by rail, and that just gives you an idea of the opportunity set that’s in front of us.”
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