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The Pipelines

Another way to play energy prices

Roughly 50 publicly traded businesses own oil or gas pipelines and storage facilities in the U.S. and Canada. Their primary appeal: consistent and rising dividends.

The stocks have done poorly lately but wonderfully over the years. From 2003 to 2007, publicly traded energy master limited partnerships -- a category dominated by pipelines and storage -- returned a stunning 21% annualized. For 2008 to August 11, the group is down 9%, the worst showing since 1999. The group is down 2% since oil and natural-gas prices started to fall.

Interstate pipeline charges are regulated, so expect steady cash payouts and dividend increases, plus some growth from physical expansion that leads to higher volumes. Pipeline shares have averaged 7% dividend growth over the past ten years and 10% the past three, with 10% again possible for 2008. The stock prices are down for two reasons. One is curtailed driving and energy use. The second is fear that interest rates will spiral and attack the financial viability of new pipeline projects. Lower prices for petroleum products would stimulate consumption and help pipeline investors.

Gas pipelines are less likely than their oil counterparts to see reduced volume, so dividend growth should be stronger. Gas production in Texas and the Rocky Mountain fields will grow rapidly. Attractive names include Atlas Pipeline Partners (symbol APL), Boardwalk Pipeline Partners (BWP), Crosstex Energy LP (XTEX), El Paso Pipeline Partners (EPB), Energy Transfer Partners (ETP) and Williams Partners (WPZ). Yields currently range from 3.7% for El Paso to 11.4% for Atlas.