Marty Fridson is an industry leading expert in sophisticated dividend investing strategies; here, the editor of Forbes/Fridson Income Securities Investor looks at two energy sector MLPs.
Antero Midstream Corp. (AM) operates as a C-Corp. MLP for Federal income tax purposes (effective March 2019), meaning the partnership issues a 1099-DIV to shareholders. AM owns, operates, and develops midstream gathering pipelines, compression, processing, and fractionation assets in the United States.
The company’s energy assets service rich gas production in two of the lowest-cost natural gas and natural gas liquids (NGL) basins, namely, the Marcellus Shale and Utica Shale basins. AM operates approximately 500 miles of low- and high-pressure gather- ing pipelines, with NGL fractionation capacity of 40,000 barrels per day.
The company also owns and operates an integrated closed-loop system of fresh water pipelines and storage facilities, to support the water handling and treatment operations of Antero Resources (AR), which owns approximately 29% of AM.
Adjusted net income of $93.0 million or $0.19 per share for 1Q 2022 missed analysts’ estimates by 2 cents. However, total revenues of $218.0 million edged out estimates of $216.0 million. Revenue and earnings were down a touch from a year ago, attributed to lower freshwater delivery volumes.
Dividends from this investment are qualified and taxed at the 15%-20% rate. This MLP is recommended for medium- to high-risk portfolios. Buy at $12.00 or lower for a 7.50% annualized yield.
Dorchester Minerals, L.P. (DMLP) is an MLP headquartered in Dallas. This relatively small partnership is engaged in the acquisition, ownership, and administration of producing and non-producing energy properties, which include natural gas mineral and crude oil royalty, overriding royalty, net profits, and property leasehold interests.
DMLP reported strong 1Q 2022 net income of $30.6 million or $0.80 per common unit, almost triple that of a year ago. EPS met analysts’ estimates. Strong results were driven on the back of increased energy prices and greater demand.
Total operating revenues of $40.4 million compared with $17.8 million a year earlier, easily topping expectations. DMLP was forced to cut its full-year distribution in 2020 by approximately one-third, given the impact of the pandemic. However, distribution growth resumed over the latter half of 2021, which we expect to see play out in 2022.
As a result, we are raising our recommendation on this MLP investment to Buy from Hold for high-risk taxable portfolios. With this review, we are also raising the fair value price to $30.00 from $20.00 for a 10.05% annualized yield.
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