Within the energy sector, there are two attractive niches that investors should be focused on right now: natural gas producers and pipeline operators.
The widespread use of “fracking” technology is helping natural gas producers pump out profits, while energy pipeline companies – which get paid based on the volume of gas transported and total distance traveled – are enjoying the energy boom themselves.
So what’s the best way to invest in these areas?
Well, I’ve just pinpointed a company that gives you access to both in a single stock. Best of all, it just delivered its 10th dividend increase since 2011.
A Doting Parent
The company I’ve identified is Atlas Energy (ATLS), a master limited partnership (MLP) that owns an interest in two daughter companies: Atlas Resource Partners and Atlas Pipeline Partners. Because ATLS has an interest in both gas production and pipeline production, it offers investors the best of both worlds.
The first daughter company, Atlas Resource Partners, produces natural gas and other fuels from its wells across the United States. Last quarter, Atlas Resource Partners grew production by 30% compared to the previous period. On top of that, the company increased production by 60% compared to last year’s levels.
The second daughter company, Atlas Pipeline Partners, owns pipelines that generate income by transporting gas and liquids from wells to refineries. Like its sister company, Atlas Pipeline Partners also reported growth in the last quarter, and it has increased its capability by 20% over the same period.
All of this is good news for Atlas Energy, as it receives “incentive distributions” from the two daughter companies. Basically, Atlas gets a higher proportion of profits from these two daughter companies, giving investors in Atlas Energy a healthy stream of cash flow.
Additionally, Atlas Energy pays a generous quarterly dividend, which the company recently increased from $0.46 to $0.49. That marked the 10th dividend increase since the beginning of 2011, a testament to the company’s commitment to paying its shareholders.
With the dividend now set at $0.49 per share, Atlas is currently paying a 4.3% dividend yield. And considering the company’s history of periodically increasing its dividend payment, investors should expect even higher payouts in the future.
Plenty of Reasons to Like Atlas
In addition to a lucrative dividend, ATLS shares also have the potential to move much higher. The company beat analyst expectations for the last quarter, and comments from management alluded to strong cash flow to support future dividend payments.
Finally, some analysts believe that ATLS could be a good takeover candidate because of the company’s valuable resources. You see, pipeline companies have been a popular target for merger transactions over the past several months. A buyout offer would likely push shares sharply higher, giving investors an overnight boost in value.
Of course, even if a merger deal doesn’t occur, investors can collect a 4.3% yield that’s likely to grow as the company’s production increases and the additional pipeline capacity generates more income.
One word of caution, though: Since ATLS is classified as a master limited partnership, dividend payments from ATLS have preferential tax treatment. That makes the stock a very attractive position for taxable accounts… However, for non-taxable or tax-deferred accounts, it’s important to consult your tax advisor before purchasing.