Tag Archives: gas-utilities

Adding ONEOK To My Dividend Pipeline

ONEOK (NYSE: ONE ) is a distributor of Natural Gas. Owning ONEOK allows me to get into the natural gas space without owning stock on the exploration side. I think of ONEOK as the FedEx (NYSE: FDX ) or UPS (NYSE: UPS ) of natural gas as it is the pipeline delivering product from point A to point B. I have wanted to get into natural gas pipeline stock, but honestly ONEOK has been overpriced until recently. Market downturns and an ongoing energy sector dip has created a good buying opportunity for this high dividend yielding stock. I purchased 40 shares of ONEOK, Inc. at $38.53 totaling $1,941.56. My Dividend Dreams Portfolio is getting heavy on energy stocks. To date, about 16% of my portfolio is in oil and gas. I prefer to only have 10% of my portfolio targeted in one area, so I will likely unload some oil stock on the next market gain. I own 100 shares of ConocoPhillips (NYSE: COP ), so this stock is the likely candidate for a reduction in shares. This purchase adds $96.80 to my annual dividend income . ONEOK Overview ONEOK, Inc. is the sole general partner of ONEOK Partners, L.P. (ONEOK Partners), a master limited partnership engaged in the gathering, processing, storage and transportation of natural gas in the United States. The company operates through three segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. The Natural Gas Gathering and Processing segment provides nondiscretionary services to producers, including gathering and processing of natural gas produced from crude oil and natural gas wells. The Natural Gas Liquids segment owns and operates facilities that gather, fractionate, treat and distribute natural gas liquids (NGLs), and store NGL products, primarily in Oklahoma, Kansas, Texas, New Mexico and the Rocky Mountain region. The Natural Gas Pipelines segment owns and operates regulated natural gas transmission pipelines and natural gas storage facilities. Source: www.schwab.com. To learn more about ONEOK, Inc. visit the About Us section of the company website. ONEOK Dividends Annual Dividend Yield of 6.38% 5-Year Dividend Per Share Average of $1.37 5-Year Dividend Yield Average of 2.96% 3-Year Dividend Growth Rate of 25.3% 5-Year Dividend Growth Rate of 21% 10-Year Dividend Growth Rate of 17.1% Payout Ratio of 59.38% Dividend Coverage Ratio (NYSE: TTM ) of 168.42% The chart below shows the past eight years of annual dividends for ONEOK. This chart visually represents how impressive dividend raises have been for ONEOK. OKE has an impressive a 5-year dividend growth rate average of 21%. (click to enlarge) Source: www.schwab.com ONEOK Valuation S&P Capital IQ ranks OKE as a hold and 3-stars with a 12-month target price of $48. Morningstar ranks OKE as a buy, 4 stars with a fair value of $52. Using my dividend toolkit I used the dividend discount model analysis with the following metrics: 9% Discount Rate and an 5% Dividend Growth Rate. I get a fair value of $63.53. Conclusion I like owning distribution stocks because they own the pipeline for delivery. This is sort of a monopoly; if a seller wants to move goods, they need a distributor. There is safety in OKE because of this, however, this stock is still subject to natural gas pricing. I don’t see gas usage declining in the near future, so I am comfortable with my purchase. Also, natural gas prices are low, which means there is a lot of upside if prices recover. Full Disclosure: Long OKE

Clean Energy Fuels – 2 Reasons And 4 Charts Show Why It’s A ‘Buy On The Dip’ Opportunity

Summary CLNE will benefit from the increasing usage of natural gas in electricity generation in the long run as this will push up the price of the commodity. Though natural gas trucks cost $50,000 more than diesel trucks, they can deliver annual fuel savings of around $25,000, creating a tailwind for CLNE as this will increase NGV adoption. The drop in diesel prices hasn’t discouraged fleet operators from buying more natural gas trucks, and this will allow CLNE to maintain its volumes even in adverse circumstances. CLNE is gradually building up fueling infrastructure that will help it increase its addressable market and land more customers for fueling services in the long run. Clean Energy Fuels (NASDAQ: CLNE ) has appreciated over 50% in 2015, but the stock has lost momentum ever since it posted weak Q1 results around a month ago. In the past one month, Clean Energy shares have dropped over 13% since the company missed consensus estimates owing to slower adoption of natural gas vehicles and the decline in natural gas prices. As a result, despite an increase in volumes of natural gas delivered, Clean Energy’s financial performance contracted and its revenue was affected to the tune of $3.7 million due to weak natural gas pricing. But, in my opinion, the drop in Clean Energy’s stock price over the past one month has given investors an opportunity to buy the stock on the dip. If we look at the long run, Clean Energy will benefit from two key factors — an increase in natural gas prices and the increasing adoption of natural gas fleets. In this article, we will take a closer look at these points and see why Clean Energy is a good buy-on-the-dip opportunity. Natural gas prices have started recovering Natural gas prices have recovered slightly since the end of April as shown in the chart below: Henry Hub Natural Gas Spot Price data by YCharts The recent recovery in natural gas prices is being driven by the injection season, as demand for the fuel has increased due to low pricing and the hot weather. In fact, the latest injection season has seen strong refill activity that has exceeded the five-year average injections by a comfortable margin, according to the EIA. Additionally, the hot summer season has led to an increase in the usage of air conditioners, which has again pushed up demand for natural gas. Now, it should be noted that natural gas is increasingly replacing coal as a source of electricity generation as shown below: The basic point that I am trying to put across over here is that demand for natural gas is increasing, and this will help decrease the oversupply in the U.S. natural gas market. In fact, over the long run, usage of natural gas in electric generation will continue increasing at a steady pace as more power plants switch from coal to gas. This is because the conversion rate of natural gas into electricity stands at 90% as compared to only 30% in case of conventional fuels. Thus, as the demand-supply situation in the natural gas market improves, prices will get better. This will act as a tailwind for Clean Energy as the company suffered last quarter due to a drop in prices. In fact, over the long run the EIA expects natural gas prices to recover strongly as pointed out in its latest Annual Energy Outlook as shown below: (click to enlarge) Source Thus, investors should not worry much regarding the short-term concern around natural gas prices as the future of the commodity looks robust in the long run. Corporations are switching to natural gas vehicles despite the decline in oil prices The massive decline in oil prices over the past year has made diesel cheaper. As a result, there is not much incentive for fleet operators to convert to natural gas, as each natural gas truck costs around $50,000 more than a diesel truck. However, fleet operators are still buying natural gas-powered trucks. This is not surprising as natural gas engines can deliver identical power and acceleration as compared to diesel engines, but at the same time, natural gas is around 50% cheaper than gasoline or diesel. This will help fleet operators record major savings in the long run. For instance, a class 8 truck in the U.S. runs around 67,000 miles a year as per the Federal Highway Administration , and has a mileage of 5.2 miles per gallon of gasoline. Now, considering a conversion cost of around $50,000 per truck, a fleet operator will be a able to record strong savings as shown below: (click to enlarge) Source Hence, fleet owners will continue converting into natural gas, and this will be a tailwind for Clean Energy. As a result, it is not surprising to see that the company has signed new agreements with Potelco and Dean Foods (NYSE: DF ) to refuel their natural gas fleets. The Potelco agreement will enable Clean Energy to fuel 75 heavy-duty LNG trucks. In fact, the company has opened two truck-friendly fuel stations in Arizona and Kansas City that will support 58 CNG trucks for seaboard transport. On the other hand, the agreement with Dean Foods will allow Clean Energy to build a private CNG fueling station to fuel 64 trucks at Dean Foods’ Oak Farms Dairy plant in Houston, Texas. More importantly, Clean Energy is investing in infrastructure in order to improve the adoption of natural gas vehicles. It has opened 16 fueling stations since the beginning of the year as a part of its plan to build around 35 stations for its customers this year. As a result, Clean Energy will benefit from investments by truck makers, engine manufacturers, and other component OEMs that are increasingly focusing on natural gas vehicles. Conclusion The two key points discussed in the article clearly indicate that Clean Energy Fuels’ weak performance is temporary. The advantages of natural gas over diesel will help it get better going forward, and the increase in pricing will be another key catalyst. Thus, it makes sense for investors to buy the drop in Clean Energy’s stock price as it can be a good long-term investment. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Is Targa Resources The Next Energy Sector Takeover Candidate?

Summary In the current low energy price environment, strong companies are looking for assets or companies they can take over on the cheap. Targa Resources Corp. is the general partner of a quality MLP that has suffered with lower energy commodity prices. TRGP is down 35% even as dividend increased 6% every quarter. Several large cap energy midstream companies could start a bidding war for TRGP. A 30% premium on the current share price is not out of the question. The steep declines in the energy commodity prices have led to speculation about mergers or acquisitions in the sector. I primarily follow the MLP and related companies, and so far in 2015, acquisition activity has been light. Vanguard Natural Resources LLC (NASDAQ: VNR ) has agreed to acquire a couple of smaller upstream MLPs and Enterprise Product Partners LP (NYSE: EPD ) just announced a $2.1 billion private deal acquisition of gathering and processing assets. Outside of these I can’t think of any meaningful purchases. I think that Targa Resources Corp. (NYSE: TRGP ) could be ripe for a take over offer from an energy midstream company looking to add quality assets and a historically successful midstream operation. Targa Overview Targa Resources Corp. owns the general partner interest and 9.1% of the LP units of Targa Resources Partners LP (NYSE: NGLS ) a $7.9 billion market cap midstream MLP. NGLS generates about 40% of its operating margin from gathering services in Texas and Oklahoma and the balance comes from logistics and marketing, which includes the following services: Targa Resources Corp. has used the GP incentives growth model to produce a high level of dividend growth compared to the NGLS distribution growth rate. If you are not familiar with the GP growth potential, I covered how the partnership system works in this article . Over the last three years the TRGP dividend has increased 27% up to 35% year over year every quarter. This growth in the TRGP dividend was fueled by high single digit distribution growth at the MLP level. Targa Resource Partners has aggressively developed and acquired midstream assets. The company has invested over $2 billion in organic capex since 2012, bringing $1 billion worth of projects online in each of the last two years. In addition, over $8 billion in acquisitions have closed over the last three years. In February Targa Resources closed its acquisition of Atlas Pipeline Partners, LP and Atlas Energy, LP. Commodity Price Declines Slow DCF Growth In the current slower drilling and lower energy price environment, Targa Resources Partners most recent guidance is for 4% to 7% distribution growth in 2015 with 1.0 times distributable cash flow coverage. In 2014 the NGLS distribution grew by 8% on 1.5 times DCF coverage. The Targa Resources Corp dividend guidance for 2015 is 25% growth, compared to 27% growth in 2014. The market has noticed the significant drop in DCF coverage at the MLP level, pushing down the NGLS and TRGP share prices by 30% and 35% respectively since last September. In 2015, the TRGP share price has cycled a couple of times between about $90 and $107. In the last 6 weeks the price has dropped from the $107 cycle peak to currently trade around $90. Reasons for the decline seem to be around falling energy commodity prices and the failure of TRGP to announce some sort of MLP roll up plan similar to the recent Kinder Morgan Inc. (NYSE: KMI ) and Williams Companies (NYSE: WMB ) moves. See: Income Power Couple: Stacking Kinder Morgan Against Williams Companies The steep share price decline has pushed the TRGP yield up to 3.6%, well above the low 2% yield the company carried last year and the 2% to 2.5% rate the market current puts on 25% high visibility dividend growth. It seems that the market does not believe that this year’s growth guidance will be met and prospects have slowed for Targa Resource Partners in the longer term. Potential Acquirers In spite of the current downturn in values, the Targa Resources companies have a high quality book of assets and operations. The company’s gathering assets are in the heart of the Permian basin and the processing, storage and export assets are in prime locations on the Gulf Coast. To acquire these assets would be a boost to one of several large cap midstream companies. If a company buys up TRGP as the general partner, the MLP is then controlled, to be merged with other assets or left as a stand alone partnership. Here are a couple of large cap MLPs that would benefit from the acquisition of Targa Resources Corp and have the resources to make a $6 billion or higher bid for the company. Enterprise Product Partners : With its $60 billion market cap, EPD needs to make meaningful acquisitions to move the needle. The Targa assets would dovetail in nicely with the Enterprise holdings. EPD made a similar acquisition last year by first buying the privately held Oiltanking GP interests and then later making an offer for the publicly traded Oiltanking LP units. Williams Companies likes to view itself as one of the major natural gas infrastructure players. Acquiring Targa would be similar to last year’s absorption of Access Midstream Partners. Williams first picked up all of the Access GP ownership and then merged the MLP into Williams Partners. Energy Transfer Equity LP (NYSE: ETE ) : The Energy Transfer group has been a more of build by acquisition set of businesses. Last year they made a run at Targa, but nothing came of it. I would not surprise me if Energy Transfer made another offer for the company. If one of the listed companies made an offer for TRGP, it would not be a surprise to see a bidding war break out. An offer of $120 per share might be enough to obtain the company. Disclosure: The author is long TRGP, KMI, WMB. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.