While many can argue about the use of oil and natural gas versus renewable sources, the reality is that the internal combustion engine and natural-gas-fired power plants will not be going anywhere any time soon. Both Brent and West Texas Intermediate crude have traded sideways to down for months and may be on the verge of a big summertime break-out to higher levels. While it is unlikely oil will hit the $120 a barrel mark as it did last summer, it is a good bet that both benchmarks will trade higher soon.
Income investors looking to the energy sector, which was the only one to outperform in 2022, are often drawn to the energy master limited partnerships (MLPs) and with good reason. While they do tend to trade higher when the crude benchmarks do, their services to transport and store oil and gas are contract based, regardless of commodity pricing.
Oil sold off recently on the bank liquidity and contagion issues, and with China demand looking poised to explode later in the year, investors who step in now could be in for some sizable total return potential with the top MLPs. Goldman Sachs sees Brent at $95 by the end of 2023 and $100 in 2024. That means that now is the time to grab these top stocks before a rally in the second half of the year.
We screened our 24/7 Wall St. MLP research universe and found five Buy-rated stocks paying huge distributions that look like outstanding ideas now. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Alliance Resource Partners
This is a leader in the thermal coal business and also offers solid diversity. Alliance Resource Partners L.P. (NASDAQ: ARLP), a diversified natural resource company, produces and markets coal primarily to utilities and industrial users in the United States. The company produces a range of thermal and metallurgical coal with sulfur and heat contents.
It operates seven underground mining complexes in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia. In addition, it leases land and operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. It buys and resells coal, as well as owns mineral and royalty interests in approximately 1.5 million gross acres of oil and gas producing regions primarily in the Permian, Anadarko and Williston Basins.
Further, the company offers various mining technology products and services, including data network, communication and tracking systems, mining proximity detection systems, industrial collision avoidance systems and data and analytics software.
Investors receive a 14.65% distribution. Benchmark has a $28 target price on Alliance Resource Partners stock. The consensus target is $29.33, and Tuesday’s final trade was for $18.90 a share.
Energy Transfer
This top MLP is a very safe way for investors looking for energy exposure and income. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.
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