Hoegh LNG Partners LP: Small-Cap MLP Priced For Double-Digit Total Returns

When investors think about investing in master limited partnerships, the first subsector that likely comes to mind is midstream energy companies – operators of pipelines and storage vessels.

What investors likely don’t think of is marine-based vessel transportation partnerships. There is a reason for this. It is a relatively small market with one MLP holding a dominant leadership position.

That MLP is Hoegh LNG Partners LP (HMLP), which trades on the New York Stock Exchange and has a market capitalization of $647 million.

What immediately stands out about this partnership is its exceptionally high dividend yield. Hoegh LNG Partners currently trades with a yield of  8.9%, more than 4.5x the average yield in the S&P 500.

Hoegh LNG Partners is one of a short list of stocks with 5%+ dividend yields, ideal for investors looking to generate meaningful portfolio income.

Hoegh LNG Partners also has other appealing characteristics. As an MLP, the company’s distributions are highly tax-efficient.

In fact, master limited partnerships are the most effective investment vehicle for generating after-tax income, primarily because they avoid paying tax at the organizational level.

Hoegh LNG Partners’ high dividend yield and tax efficiency make it an appealing investment for investors looking to synthesize a passive income stream from their nest egg.

This article will analyze the investment prospects of Hoegh LNG Partners in detail.

Business Overview

Hoegh LNG Partners is a publicly-traded master limited partnership that provides floating, marine-based liquid natural gas (LNG) transportation services under long-term contracts.

The partnership owns and operates five floating storage and regasification units (FSRUs) which act as floating import terminals. Hoegh LNG Partners is the only pure play FSRU company in the public markets and owns the most modern FSRU fleet.

Hoegh’s general partner is Hoegh LNG Holdings Ltd (HLNG), which is domiciled in Bermuda. In addition to its general partner interest, Hoegh LNG Holdings owns a 46.4% limited partner stake in Hoegh LNG Partners. This significant alignment of interest is beneficial for all parties involved and should be noted by Hoegh’s investors.

Source: Hoegh LNG Partners June 2017 Investor Presentation, slide 4

From an investment perspective, Hoegh LNG Partners is attractive from a number of angles.

It is the only publicly listed FSRU pure play in the market, which gives it a leadership position in its industry.

Further, the partnership’s revenues are generated under long-term contracts with a weighted average term of 12.2 years.

Hoegh LNG Partners’ earliest contract renewal occurs in 2025 and the partnership has no near-term debt maturities, giving it a measure of recession resistance in the short-term.