While no one likes to lose money, that's a risk all investors take when they put money into stocks. However, some businesses make it less likely that an investor will permanently lose money. While the company might have a down year, it has the financial and operational strength to recover, which makes its stock much less risky.
Three companies that skew toward the lower end of the risk spectrum are Enterprise Products Partners (NYSE: EPD), Magellan Midstream Partners (NYSE: MMP), and MLPX (NYSE: MPLX). That's because these energy infrastructure master limited partnerships (MLPs) have stable businesses and top-tier financials, which makes them safer options for investors.
If you're looking for safer investment options, you're heading in the right direction. Images source: Getty Images.
Growing even safer
Enterprise Products Partners is one of the largest energy midstream companies in the country. The MLP makes its money by operating pipelines and storage facilities, which act like tollbooths and parking meters by collecting a steady supply of fees as oil and gas pass through its vast system. Overall, those stable assets support about 92% of the company's earnings, which has helped Enterprise continue generating relatively steady cash flow when times get tough.
That cash flow stability enables Enterprise Products Partners to pay a growing cash distribution to investors, which currently yields 6.4%. Adding further support to that payout is that Enterprise covers it with cash flow by a comfortable 1.2 times, and it has a top-tier balance sheet, including one of the highest credit ratings in the industry. While the company's metrics put its payout on rock-solid ground, Enterprise recently announced plans to further strengthen its financial situation by growing its distribution at a slower pace next year so it can widen its already conservative coverage ratio and generate more cash to fund expansion projects. That focus on shoring up an already strong foundation will make Enterprise Products Partners an even less risky option in the coming years.
Nearly a mirror image
Magellan Midstream Partners' financial metrics are right up there with those of Enterprise. For example, it also has one of the top credit ratings among MLPs, and it keeps its distribution coverage ratio above 1.2. Meanwhile, it gets about 90% of its income from stable fee-based sources or other low-risk activities such as transporting and storing oil. Those factors put its 5.1%-yielding distribution on solid ground.
Furthermore, one of Magellan's focuses in recent years has been to further drive out risk by increasing the percentage of earnings that come from stable fees. That led the company to invest billions of dollars in building and buying additional fee-generating assets. Currently, the company has $1.7 billion of fee-based assets under construction, which should help further reduce cash flow volatility. That focus on fees, when combined with its strong financial metrics, will continue pushing risk out of Magellan's business.