By: Dividend Sensei
…Welcome Enviva Partners and Hoegh LNG Partners
Some of the best long-term high-yield opportunies are in the MLP industry, which is why we are adding Enviva Partners (EVA), and Hoegh LNG Partners (HMLP) to the portfolio.
Enviva Partners is an MLP that is one of America’s largest producers of wood pellets and chips, which have seen incredibly strong import demand from Europe, where utilities are increasingly being required to turn to renewable energy sources.
With cash flow that’s under long-term, take or pay contracts, combined with a strong balance sheet (low debt), and strong distribution growth potential (most recent payout up 8.6% YOY, representing the 7th consecutive quarterly increase), EVA’s 7.6% yield offers a very good mix of high current income and future growth and total return potential.
Meanwhile Hoegh LNG Partners is another LNG tanker MLP, which we own several of. This is because this industry is an often overlook MLP niche, in which unit prices trade along with oil, however the cash flow is all under long-term, fixed charters with some of the world’s largest and most stable oil giants.
Hoegh is a pure play floating storage and regasification (FSRU) MLP, which owns five specialized tankers that are in extremely high demand right now. That’s because growing demand for cheap US fracked natural gas in Europe and Asia is expected to trigger a long-term boom in the global LNG trade.
However, the cost of building new import/export and regasification terminals is extremely expensive and so HMLP’s specialized tankers can get very lucatrive, and incredibly long-term contracts. In fact, the MLP’s 5 FSRU’s have an average remaining charter of 12.2 years, representing $2.2 billion in contractually guaranteed cash flow.
Even better, the MLP’s sponsor Hoegh LNG Group, has 33 tankers it either owns or is building, with plans to construct even more that can and likely will be dropped down to HMLP in the future, generating some potentially strong long-term distribution growth.
With a 9.1% yield, and a conservative estimate of 3% to 4% long-term payout growth, HMLP’s 12% to 14% total return outlook makes it a welcome addition to the DVDGI.