TCLP TC Pipelines, LP - Common Units Representing Limited Partnership Interests (MM)

Investors shaken by the weak economic reports and subsequent market pullback should consider adding some defensive names to their portfolio. One of the best ways to do that is by investing in a Master Limited Partnership.

Although not all MLPs are immune to bear markets and recessions, those with attractive (and sustainable) distribution yields should hold up quite well.

Unitholders, Not Shareholders

Master Limited Partnerships raise capital by issuing units, which act much like common shares. Investors buy units of the partnership and are referred to as "unitholders" rather than shareholders.

The MLP itself is not taxed as an entity as it passes through the bulk of its income to unitholders through "quarterly required distributions" (QRD). The unitholders are the only ones that pay taxes, unlike dividends which get taxed at both the corporate and individual level.

MLPs typically operate in low risk, slow-growth industries like oil and natural gas pipelines. Cash flow is usually strong and distributions stable over time.

These strong and stable distributions should provide limited downside risk in a weak market as yield-hungry investors move in and bid up the price.

A Great Defensive Play

For investors wanting to add some defense to their portfolio while generating solid income, MLPs can be a great addition. Below are 4 MLPs that should hold up well in a choppy market. Neither one cut their distribution during the Great Recession and all currently yield more than 5%.

TC PipeLines, LP (TCLP) was formed by TransCanada PipeLines Limited to acquire, own and actively participate in the management of U.S.-based natural gas pipelines and related assets. It is headquartered in Houston, Texas has a market cap of $2.4 billion.

Earnings estimates have been surging for the MLP as it delivered an average positive earnings surprise of 23% over the last 4 quarters.

TC PipeLines has a stellar history of consistently raising its distribution. It currently yields a hefty 6.5%.

Plains All American Pipeline, L.P. (PAA) is a Master Limited Partnership engaged in interstate and intrastate marketing, transportation and terminalling of crude oil. It is also headquartered in Houston, Texas and has a market cap of $9.1 billion.

Consensus estimates have been screaming higher for PAA over the last few months as the partnership has delivered three consecutive positive earnings surprises.

Plains pays a distribution that yields an attractive 6.3%. It also has a history of steadily raising its distribution over the last 10 years.

Buckeye Partners LP (BPL) receives petroleum products from refineries, connecting pipelines and marine terminals, and transports those products to other locations. It has a market cap of $5.3 billion and, yes, it is headquartered in Houston, Texas too.

It pays a distribution that yields a juicy 6.4%. As you can see in the chart, Buckeye has been consistently raising its distribution over the last decade, even during the Great Recession.

ONEOK Partners, L.P. (OKS) is an MLP engaged in the gathering, processing, storage and transportation of natural gas in the U.S. It is headquartered in Tulsa, Oklahoma and has a market cap of $8.2 billion.

Earnings estimates have been steadily rising for OKS over the last several months as it has put together three consecutive positive earnings surprises.

The partnership also has a solid track record of raising its distribution. It currently yields 5.6%.

Conclusion

With attractive yields and a solid history of rising distributions, these MLPs provide a safe haven in a choppy market.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
BUCKEYE PARTNRS (BPL): Free Stock Analysis Report
 
ONEOK PARTNERS (OKS): Free Stock Analysis Report
 
PLAINS ALL AMER (PAA): Free Stock Analysis Report
 
TC PIPELINES (TCLP): Free Stock Analysis Report
 
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