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Last Week's Interest Rate Hike: The Impact on MLPs

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Part 2
Last Week's Interest Rate Hike: The Impact on MLPs PART 2 OF 2

Why MLPs Continue to Be Attractive

Attractive yields

MLPs continue to offer attractive yields near 7.0%, compared to ~4.0% for REITs, ~3.5% for utilities, ~2.5% for Treasuries, and ~2.0% for the broader markets (SPX-INDEX). That makes MLPs attractive, especially for income investors.

However, higher yields generally come with higher risks. Large-cap MLPs with sound business fundamentals, steadily growing distributions, and strong financial profiles generally offer less risk and may offer investors an attractive risk-return proposition.

Why MLPs Continue to Be Attractive

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In addition to yield, MLPs currently offer attractive upside potential. Now let’s look at the price targets provided by Wall Street analysts for selected MLPs.

Analyst recommendations for the top MLPs

Of the analysts surveyed by Reuters, 93.0% have recommended a “buy” for Enterprise Products Partners (EPD), and about 7.0% have recommended a “hold.” Their consensus target price for EPD is $33, which implies a 21.0% price return from EPD’s current price of $27.19.

The above graph compares the recommendations for EPD, Magellan Midstream Partners (MMP), Plains All American Pipeline (PAA), and Williams Partners (WPZ).

About 47.0% of analysts have rated MMP a “buy,” 42.0% have rated it a “hold,” and 11.0% have rated it a “sell.” MMP has a target price of $82.80, which implies a price return of 7.0% over the next year from its current price of $77.65.

In comparison, 48.0% of analysts surveyed rated Plains All American Pipeline (PAA) a “buy,” with the remaining rating it a “hold.” PAA has a target price of $34.30, which implies a price return of 10.0% over the next year from its current price of $31.14.

Nearly 53.0% of surveyed analysts rated Williams Partners a “buy.” WPZ has a target price of $43.60, which implies a price return of nearly 11.0% over the next year from its current price of $39.18.

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