I continue to add to my income portfolio at opportune times. Although I believe the Federal Reserve will start to taper its bond-purchasing program sometime in the first half of 2014, I don't believe rates will rise enough to undermine the investment case for some high-yielding sectors.
In addition, I don't believe the market will provide nearly as robust returns in 2014 as it has so far in 2013. I believe the consensus forecast calling for returns in the mid-single digits next year is solid and could be a best-case scenario, given this year's huge rally. Therefore, high-yield opportunities have a lot of appeal here.
The energy sector continues to provide numerous high-yield possibilities within the limited and master limited partnership space. The country is in the early innings of huge domestic oil and gas production surge along with the build-out of the associated infrastructure needed to handle this additional supply.
Here are a few of the high-yielding plays within this space that I have recently added to my portfolio.
I just picked up some shares in a limited partnership named PetroLogistics (PDH). This entity owns and operates the world's largest propane dehydrogenation facility, down near Houston. Petrologistics is the only dedicated independent producer of propylene in the U.S. Propylene is a major industrial chemical intermediate that serves as a building block for an array of chemical and plastic products.
This limited partnership came public a year and a half ago, and its facility in Houston is strategically located for access to about one-half of all U.S. propylene consumption. The stock got hit earlier in the summer as the company had to bring down this facility to repair two of the eight reactors there. The shares are down from a high of $16 earlier in the year to around $11.50 a share currently.
The pullback provides a nice entry point. The stock seems to have been building a technical base at current levels over the last few months. The shares also provide an almost 15% distribution yield at these depressed prices. Despite the yield, the stock goes for less than 8x this year's earnings, the company has a solid balance sheet, and revenue should grow 8% to 10% in fiscal 2014.
Another limited partnership in energy that provides a double-digit distribution yield (10.2%) that I hold is Breitburn Energy Partners (BBEP). Breitburn is an oil-and-gas exploration-and-production firm that has long-lived assets. I added to my holdings recently when the company did a secondary offering to raise funds to retire debt.
Breitburn was recently upgraded to a Buy at Robert W. Baird. The company is seeing both revenue and earnings increase at a rapid clip as it brings new production on line. Breitburn's production mix is also becoming increasingly liquids-rich, and that is a significant positive.
Fellow contributor Casey Hoerth did an excellent deep dive on the company last week. His column is highly recommended reading for investors who are considering adding this well-run limited partnership to their income portfolios.