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Teekay LNG Partners L.P. (TGP - Free Report) offers investors an attractive one-two punch of growth and income. The partnership pays a distribution that currently yields a very attractive 7.8%. And analysts expect recent additions to its fleet to drive strong earnings growth in the near future.

It is a Zacks #2 Rank (Buy).

Liquefied Natural Gas

Teekay LNG Partners provides liquefied natural gas (LNG) and crude oil marine transportation services under long-term, fixed-rate contracts primarily with major energy and utility companies. The contracts usually run 10-25 years in duration, providing it with stable cash flow.

It was founded in 2004 by Teekay Corporation (TK) and has a market cap of $2.1 billion.

Third Quarter Results

Teekay LNG Partners reported better than expected results for the third quarter of 2011. Earnings per limited partner unit came in at 47 cents, beating the Zacks Consensus Estimate of 45 cents.

Distributable cash flow jumped 19% year-over-year to $43.7 million. The distribution coverage ratio (distributable cash / distributions) was a healthy 1.08x.

Meanwhile, revenue rose 5% to $97.256 million. And operating income rose 16% year-over-year as the company leveraged its fixed expenses.

7.8% Yield

Management announced that it will recommend to the board of directors a 7% increase to the quarterly distribution. This would raise it to $0.675 per unit, beginning in May 2012. This corresponds with a whopping 7.8% distribution yield.

As you can see, TGP has a history of steadily raising its distributions, even during the Great Recession:

TGP: Teekay LNG Partners L.P.

Estimates Rising

Analysts raised their estimates for both 2011 and 2012 following strong third quarter results. This sent shares to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2011 is $1.71, representing 8% growth over 2010 earnings per unit. The 2012 consensus estimate is currently $1.98, corresponding with 16% growth.

Analysts expect a combination of stable long-term contracts, acquisitions and new projects to drive solid earnings growth going forward.

Reasonable Valuation

The valuation picture looks reasonable for TGP. Shares trade at 17.5x 12-month forward earnings, a discount to the industry median of 21.3x, and its historical median of 18.9x.

The Bottom Line

With rising estimates, strong growth projections, a juicy 7.8% and reasonable valuation, TGP offers investors strong total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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