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Master Limited Partnerships: The Perfect Dividend Stocks

Master limited partnerships typically are engaged in the transportation of oil and gas across a vast network of pipelines. While prices of energy products fluctuate greatly, the volume transported does not change by much. In addition, once a pipeline is built, there is little in maintenance expenses for this long-term asset, and there is little if any competition in the particular geographic area for transporting energy products like oil or gas. As a result, master limited partnerships are able to pass most of their distributable cash flows to investors in the form of distributions. In effect, master limited partnerships are the perfect dividend growth stocks, as they pay above average yields and also consistently grow distributions at least once per year.

The list of consistent dividend raisers was dominated by master limited partnerships. The companies which rewarded their investors with higher dividend incomes include:

Kinder Morgan Energy Partners L.P. (KMP), which owns and manages energy transportation and storage assets, raised its quarterly distributions to $1.15 per unit. This master limited partnership is a dividend achiever, which has increased its quarterly distributions for 15 years in a row. Yield: 6.30% (analysis).

Kinder Morgan (KMI) owns the general partner interest of Kinder Morgan Energy Partners L.P. (KMP), one of the largest publicly traded pipeline limited partnerships in America, and has limited partner interests in KMP and Kinder Morgan Management LLC (KMR). The company increased its quarterly distribution for the first time since going public in April 2011, to 30 cents per share. Yield: 4.20%.

ONEOK Inc. (OKE), a diversified energy company, operates as a natural gas distributor primarily in the US. ONEOK Inc. is the general partner for ONEOK Partners (OKS). The company raised its quarterly dividend by 8% to 56 cents per share. ONEOK Inc. has raised dividends to shareholders for nine consecutive years. Yield: 3% (analysis).

ONEOK Partners L.P. (OKS) engages in the gathering, processing, storage and transportation of natural gas in the US. This master limited partnership increased its quarterly distributions to 58.5 cents per unit. ONEOK Partners has increased its quarterly distribution in each of the past six years. This MLP currently yields 5.30%.

Duncan Energy Partners L.P. (DEP) engages in gathering, transporting, marketing and storing natural gas, as well as in transporting and storing natural gas liquids (NGLs) and petrochemical and refined products in the US. This master limited partnership increased its quarterly distributions to 46 cents per unit. Duncan Energy Partners has increased its quarterly distributions in each of the past five years. This MLP yields 4.30%.

Magellan Midstream Partners L.P. (MMP), together with its subsidiaries, engages in the transportation, storage and distribution of refined petroleum products and crude oil in the United States. This master limited partnership raised its quarterly distributions to 78.50 cents per unit. This dividend achiever has raised distributions for 11 years in a row. Yield: 5.20%.

TransMontaigne Partners L.P. (TLP), which operates as a terminaling and transportation company increased its quarterly distributions to 62 cents per unit. TransMontaigne Partners has increased its quarterly distribution in each of the past seven years. This MLP currently yields 7%.

The notable non-MLP companies which announced dividend hikes over the past week included:

The J. M. Smucker Company (SJM), which engages in the manufacture and marketing of branded food products in the US and internationally, increased its quarterly distribution to 48 cents per share. The change represents an increase of nine percent, adding to the ten percent increase approved by the board earlier this calendar year. This dividend achiever has raised distributions for 14 years in a row. Yield: 2.40%.

C. R. Bard Inc. (BCR), which engages in the design, manufacture, packaging, distribution and sale of medical, surgical, diagnostic and patient care devices worldwide, increased its quarterly dividend by 5.60% to 19 cents per share. C. R. Bard Inc. is a dividend aristocrat, which has increased its quarterly dividend for 41 consecutive years. The stock currently yields 0.70%.

Bar Harbor Bankshares (BHB) operates as the holding company for Bar Harbor Bank & Trust that offers various banking products and services to individuals, businesses, not-for-profit organizations and municipalities in Hancock, Washington and Knox Counties. The company increased its quarterly dividend to 27.50 cents per share. Bar Harbor Bankshares has increased its quarterly dividend in each of the past eight years. The stock currently yields 3.90%.

Lindsay Corporation (LNN) designs, manufactures and sells automated agricultural irrigation systems that are primarily used in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor in the United States and internationally. The company increased its quarterly dividend by 5.90% to 9 cents per share. Lindsay Corporation has increased its quarterly dividend in each of the past nine years. The stock currently yields 0.50%.

I recently sold my position in ONEOK Inc. (OKE), which I accumulated at an average price in the low- to mid-$50s in 2010, at a very handsome profit. I then rolled the proceeds into units of ONEOK Partners (OKS), which at the time yielded almost twice as much as ONEOK Inc. While ONEOK Inc. will grow dividends at a rapid pace for the next three years, the higher current yield of the partnership (OKS) as well as the opportunity for distribution growth and large tax deferral of the distribution make it a better investment.

Full Disclosure: Long OKS, KMR, KMI

About the author:

Dividend Growth Investor
http://www.dividendgrowthinvestor.com

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