Investing Topics: Midstream Energy

The uncertainty surrounding the cross-border leg of TransCanada Corp's Keystone XL pipeline hasn't diminished the company's growth prospects. We examine the investment opportunities behind the controversy.

One pipeline company rewards investors with a 70 percent total return the year after it restores regular distribution growth. The other’s unit price falls nearly in half after it guts its payout by more than 80 percent.

Nothing stirs up fear and uncertainty like a distribution cut. And in the energy midstream business, the news doesn’t often get as bad as it did with Boardwalk Pipeline Partners (NYSE: BWP) this week.

In 2013, the Alerian MLP Index gained 27.6 percent. Energy Transfer Partners (NYSE: ETP) did much better at 43.4 percent, thanks to restoring regular quarterly distribution increases.

Kinder Morgan Energy Partners LP (NYSE: KMP) has come under fire for its tight distribution coverage and concerns that the blue-chip MLP’s size makes it difficult to grow cash flow. The burdensome incentive distribution rights that the partnership pays to its general partner, Kinder Morgan Inc. are another cause for concern.

Investors should disregard any articles about Kinder Morgan Energy Partners’ tanker acquisition that confuse the global VLCC market with US-flagged vessels that comply with the Jones Act.

By any measure, 2013 was a great year to own stocks. It was also an exceptionally bad time to bet against the United States of America. And that remains the case as we open the page on 2014.

Our favorite Canadian midstream companies–names that own pipelines and processing capacity–generate the majority of their cash flow from fee-based services, a business model that provides a degree of protection against volatile oil and gas prices.

Healthy growing businesses produce rising dividends, which in turn push share prices higher: That’s the utility investor’s road to superior and safe long-term returns. And if operating results of our Portfolio companies are any indication, it’s still wide open.

24.

That’s how many stocks we track at Energy & Income Advisor and Conrad’s Utility Investor that yield more than 10 percent.