We are now getting a sense of what President Elect Trump can and can't do. Who has the votes to block what the congressional leadership doesn't favor, so it will be a struggle. What can't be done with a stroke of a pen or a pointed tweet.
But one thing is for certain: Trump's pro pipeline and while there can be some local opposition that can hold things up and courts that will ratify that, you aren't going to get the kind of federal opposition that has routinely gotten in the way of any pipeline anywhere in any state, no matter what.
I know people want to buy the oils off more pipe. I know the discussion of Keystone will be on the table again. But those are, in a word, sideshows. This pipeline issue is far more sophisticated and subtle. It's not about oil from Canada anymore. It's not even about sending expensive crude from North Dakota, including the Dakota pipe currently the subject of overnight protests.
It's about transporting natural gas and refined product from where it's stuck -- largely Pennsylvania and Ohio -- to where it needs to go, largely to the south. There, it can be processed and sent overseas by liquid or be sent right to a rapacious Mexico that's running out of natural gas because it hasn't kept its fields in the Gulf of Mexico up to date.
We need gasoline to be exported around the world, as we are one of the world's cheapest refiners. The pipes needed for the tasks are far different from a pipeline, say, to send very-hard-to-refine sludge down from Canada.
The fortunes of all energy companies will be dicey under any president. It's an international commodity. Supply and demand dictate pricing, although OPEC claims that it and some allies control it. I know Trump's pro coal and that there's bidding up of a whole host of coal-related stories, including the red-hot rails. But be careful. Utilities have been retiring coal plants for years and will continue to do under any Environmental Protection Agency. Don't expect new coal plants or a reversal of the closing of old ones.
But what we have in abundance is natural gas and that's being switched to everywhere as a fuel of choice. That's why, no matter what, going forward the best way to participate in a more pro-fossil fuel environment is to buy pipelines stocks, the best pipelines. And there are many of them.
First, I have to be out front on this. I've been snake pit on the pipes and I want to be clear on that. I had been a great believer in Rich Kinder, but when he bought out his own Kinder Morgan MLP with the Kinder Morgan (KMI) corporate parent, it was an inopportune time. He piled on too much debt and misread the cash flows. At that point, things just went from bad to worse. A company that was said to be a toll road for energy turned into one that was far more levered to the collapsing price of oil than we thought.
Next thing you know, the dividend was cut and the main reason to own it -- a long-term plan to return capital with an ever-so-higher distribution plan -- evaporated. The stock of KMI, the surviving entity, cratered hideously from $43 to $12 from the peak of oil in 2014 to near the trough in 2016. It might as well have been an oil stock, for all of that toll road talk. Now KMI stock has managed to rally from that dastardly level post the cut to $21. There, though, it only yields 2.3%.
I see upside from here simply because it wants to build a lot of pipe and you won't get a lot of protests, local or federal, from where it wants to put up pipe. Still, I am smarting from that dividend cut, the failed promise of the growth and dividend prospects that had been laid out so specifically when Kinder brought in the MLP, and the lack of income, which is why most people buy these stocks to begin with.
Another that makes sense but has stung me? Energy Transfer Partners (ETP) . Here's one that got very lucky. Before things broke down in the patch, ETP's deal-happy Kelcy Warren tried to buy fellow pipeline company Williams (WMB) , which made sense when it came to creating a tremendous national natural gas network. But the group was collapsing as many pipelines began cutting their distributions in sync with the pulverizing of oil, and the deal ultimately broke down over tax considerations.
It was a total lucky break for a strapped ETP; Williams subsequently slashed its distribution. ETP might have had to restructure, crushing its equity, if the deal proceeded. Now ETP yields 10% and, even as high as it is, that yield does have an air of safety about it. Normally I would just throw the red flag and forget about it, but the cash flow here is big. Plus, it has pipe that can bring natural gas down from the two huge natural gas fields, Utica and Marcellus in Ohio and Pennsylvania. Therefore, it's a buy -- a riskier one, but one that could have a good story under President Trump.
Two others that could work? How about Enbridge (ENB) and TransCanada (TRP) , traditional pipeline companies with smallish yields but lots of growth. They are the most likely beneficiaries of pipelines to bring energy from Canada, but the issue there is that lots of that is oil, and we don't need more oil in the U.S. Still, they have other pipes and expansion plans that would be greenlighted faster under a Trump campaign.
Then there is Enterprise Product Partners (EPD) , which pushes and refines natural gas liquids. A 6.42% yielder, the rap against EPD is that it has spent too much money on infrastructure to refine natural gas liquids into oil -- we have too much oil as it is. Still, it is a disciplined and well-run company.
Finally, there's Magellan Midstream Partners (MMP) run by Mike Mears, regarded as one of the great managers in the industry. With a 5% yield and a very low-risk style, Magellan might be the best of the lot. This company's management kept its head when almost all others around it got huge eyes when oil climbed to the $100s. It's the safest and, in the end, the most logical, given that Mears seems to know what he's doing in any environment.
So, don't go crazy for energy. Don't go nuts for coal. But consider the pipes: they will soon have a friend, not a sworn enemy, in the White House and it will make a difference and a positive one at that.