Are They Dividend Bargains? — The Motley Fool

When investors think about energy stocks, they often have oil drillers in mind. But by limiting their scope, they’re missing out on a lot of options. Case in point: midstream companies like Buckeye Partners, L.P. (NYSE:BPL) and Plains All American Pipeline, L.P. (NYSE:PAA), which help move oil and gas from where it’s drilled to where it’s used. Right now both partnerships have fat yields because their unit prices have fallen more than 20% over the past year. But that doesn’t mean both are bargains today.

Here’s what you need to know about these two beaten-up midstream energy partnerships.

Investing for the future

Buckeye Partners’ units are falling because the distribution coverage has been weak lately. In fact, in the second quarter of 2017, distribution coverage fell to just 0.95. That goes along with net income per unit falling to $0.80 in the quarter from $1.07 in the same period of 2016. The company is also dealing with the loss of a key customer at one of its facilities. These are not comforting facts, but they may be providing investors with a chance to lock in a hefty 8.7% yield. 

Image source: Getty Images.

For perspective, this isn’t the first time that Buckeye’s distribution coverage has fallen below one. The partnership’s available cash flow didn’t cover the distribution in 2013 or 2014, either. But the distribution kept growing just the same, and the partnership boasts a history of 22 consecutive annual increases backed by its largely fee-based pipeline and global storage business. As management takes a long-term view investing for the future, it’s willing to allow distribution coverage to dip below one over the short term.    

Today’s big investments include the purchase of a 50% stake in global energy storage company VTTI. This move helped push Buckeye’s unit count higher by around 10 million units year over year, depressing per-unit metrics. The VTTI investment has contributed to results for only one quarter at this point.

There are also longer-term projects in the works, like Buckeye’s construction plans for a pipeline that will link up the prolific Permian Basin to assets the partnership owns in Texas, increasing demand for its facilities there. And Buckeye is working — and should eventually be able — to replace that lost customer, even if it takes a little time.    

BPL data by YCharts.

Buckeye has an impressive record of paying unitholders to…

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