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Strategies & Market Trends : Value Investing
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To: Spekulatius who wrote (56408)12/17/2015 9:49:32 AM
From: gcrispin   of 78673
 
I have built a large position in SE recently and it is my only investment in the oil debacle other than ERII, but that is another story.

The reason SEP has a lower yield is because it is the safest MLP in the sector. The Texas Eastern pipeline is an extensive network with little to no competition and still has opportunities to expand. I would buy SEP if I was willing to deal with a K-1 in a taxable account. The Morningstar excerpt below gives you a flavor of the SEP's moat-like qualities.

SEP’s pipeline assets are “moaty” since they face extensive regulatory oversight at the FERC, state and local levels with the oversight acts as gateway for new entrants. SEP does not incur volume or commodity price risk in its operations since long term contracts underpin SEP’s pipelines and add resilience during periods of volatility. In the U.S. Transmission segment, the average contract life on SEP’s major natural gas pipelines ranges from 6 to 17 years. As of 2014, Texas Eastern pipeline had an average contract length of eight years and saw a contract renewal rate of over 99%. Furthermore, 95% of revenue from the U.S. Transmission business is from demand charges, which are paid whether the capacity is used or not, thus insulating them from volume changes. In the liquids segment, the Express, Southern Hills and Sand Hills pipelines are all supported by long-term take or pay contracts while volumes on the Platte pipeline have continuously exceeded capacity since 2005.
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