Energy
7 MLP Giants That Keep Raising Distributions, Even Through Recent Hard Times
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With oil having rallied massively from its 2016 lows, the investor interest in the energy sector has come back strong. The post-election rally also seen as pro-energy, and that is viewed positively for oil and gas outfits. Despite a rise in interest rates, there has also been an interest in master limited partnerships (MLPs) due to their transportation toll-road models and their positions as having some defensive and massive infrastructure.
Whether all of this new domestic energy drilling will take prices back down, particularly with so many of us questioning whether OPEC will live up to its production cuts, remains to be seen. Either way, the energy sector has seen more interest in the second half of 2016 and into 2017 than it saw in all of 2015 and at the start of 2016.
24/7 Wall St. decided to look for MLPs that bucked the trend of distribution cuts over the past three years or so. While other MLPs have maintained their distributions, we found only seven existing large MLP structures that have continued to raise their quarterly distributions from 2014 to 2016. Some already have announced distribution hikes in the first week of 2017.
One impetus for this view was that Barron’s recently showed some of its top income ideas for 2017. The financial publication was very negative on the MLP sector as a whole, panning it and listing it as a sector to avoid in 2017. Also, it was just on the first day of the year that the firm Janney responded to the Barron’s report showing that its projections painted too broad of a brush on the sector valuations. And Stifel just released its five top MLP picks for 2017, and there was very little overlap with the following seven MLPs.
In an effort to make sure these MLPs were not one-offs or too small to matter, each had to have a market cap well over $1 billion. All of these do, and then some. We took data directly from each company’s releases about distributions to confirm the reports. Other data were used for the market caps, closing prices, trading ranges and the equivalent yields of distributions. Thomson Reuters was used for analyst and select financial data.
What MLP investors need to consider for 2017 is that not every partnership is out of the woods, even as oil continues to remain handily above $50 per barrel. Because MLPs pay distributions from their distributable cash flow rather than classical earnings and/or cash flows from traditional corporations, these “yields” are not the traditional ones you get from common stocks.
The most important issue to consider here is that there are no assurances at all that history will repeat itself with future distribution hikes. Lastly, analyst price targets change through time, and investors have noticed how much volatility was seen in 2016.
Here are seven multibillion dollar MLPs that now have multiyear histories of raising their distributions through the hard times seen from late in 2014 into 2016.
Enterprise Products Partners
Not only does Enterprise Products Partners L.P. (NYSE: EPD) remain among the largest of all MLP structures, but it is considered among the best run of them all. On January 5, 2017, it announced that its quarterly cash distribution paid to partners would be $0.41 per common unit ($1.64 annualized) from a prior level of $0.405 per unit. This represented a 5.1% increase from a year earlier and is said to be Enterprise’s 59th distribution increase since coming public in 1998. It also was shown to be the 50th consecutive quarterly increase to the distribution, and that is one hell of a streak.
Its units were recently trading at $27.43 apiece, and Enterprise Products Partners has a market cap of almost $58 billion. Its 52-week trading range is $19.00 to $30.11, and the consensus analyst target price is up at $31.88. Its yield-equivalent is about 6%. Its history of distribution hikes since 2013 is as follows:
- Oct. 27, 2016, $0.405
- July 27, 2016, $0.400
- Apr. 27, 2016, $0.395
- Jan. 27, 2016, $0.390
- Oct. 28, 2015, $0.385
- July 29, 2015, $0.380
- Apr. 28, 2015, $0.375
- Jan. 28, 2015, $0.370
- Oct. 29, 2014, $0.365
- July 29, 2014, $0.180
- Apr. 28, 2014, $0.177
- Jan. 29, 2014, $0.175
Magellan Midstream Partners
In late October, Magellan Midstream Partners L.P. (NYSE: MMP) announced that it was raising the quarterly cash distribution to $0.8375 per unit for the period July 1 through Sept. 30, 2016. The outfit showed that this was Magellan’s 58th distribution hike since its initial public offering in 2001, and that it was 10% higher than the third-quarter 2015 and 2% higher than the second-quarter 2016 distribution.
Magellan Midstream was last seen trading at $76.82, within a 52-week range of $55.25 to $77.45. Its consensus price target is $78.13. Magellan has a market cap of $17.5 billion and a yield-equivalent of 4.4%. Its distribution hike history since 2013 is as follows:
- Oct. 27, 2016, $0.838
- July 28, 2016, $0.820
- Apr. 28, 2016, $0.803
- Feb. 03, 2016, $0.785
- Oct. 29, 2015, $0.763
- Aug. 05, 2015, $0.740
- Apr. 30, 2015, $0.718
- Feb. 04, 2015, $0.695
- Nov. 05, 2014, $0.668
- July 31, 2014, $0.640
- May 06, 2014, $0.613
- Feb. 05, 2014, $0.585
Buckeye Partners
Buckeye Partners L.P. (NYSE: BPL) just recently completed its $1.15 billion acquisition of a 50% equity interest in VTTI B.V. that will be owned jointly with Vitol. Whether this has an impact in distribution remains to be seen. Back in October, Buckeye announced that its general partner declared a cash distribution of $1.2250 per L.P. unit. That cash distribution was a 4.3% increase over the third quarter of 2015. Buckeye said at that time that it has paid cash distributions in each quarter since its formation in 1986.
Buckeye Partners recently traded at $67.50, and its market cap is $9.5 billion. The 52-week range is $47.07 to $75.10, and the consensus target price was last seen at $76.92. The yield-equivalent is 7.4%, and the distribution per unit history since 2013 is as follows:
- Nov. 10, 2016, $1.225
- Aug. 11, 2016, $1.213
- May 12, 2016, $1.200
- Feb. 19, 2016, $1.188
- Nov. 05, 2015, $1.175
- Aug. 06, 2015, $1.163
- May 07, 2015, $1.150
- Feb. 12, 2015, $1.137
- Nov. 14, 2014, $1.125
- Aug. 14, 2014, $1.113
- May 08, 2014, $1.100
- Feb. 13, 2014, $1.088
Western Gas Equity Partners
In October, Western Gas Equity Partners L.P. (NYSE: WGP) announced that its quarterly cash distribution of $0.4475 per unit represented a 3% hike over the prior quarter, but this was shown to be a 17% hike over the third quarter of 2015.
Western Gas Equity Partners was last seen trading right at $44.00. That made for a market cap of $9.6 billion. Its 52-week range is $19.21 to $46.38, and the consensus target price is $45.67. The yield-equivalent is 4.2%, and the distribution hike history since 2013 is as follows:
- Oct. 27, 2016, $0.447
- July 28, 2016, $0.434
- Apr. 28, 2016, $0.424
- Jan. 28, 2016, $0.404
- Oct. 29, 2015, $0.381
- July 29, 2015, $0.364
- Apr. 28, 2015, $0.343
- Jan. 29, 2015, $0.313
- Oct. 29, 2014, $0.291
- July 29, 2014, $0.271
- Apr. 28, 2014, $0.250
- Jan. 29, 2014, $0.231
Western Gas Partners
Western Gas Partners L.P. (NYSE: WES) announced an October distribution of $0.845 per unit. This represented a 2% increase over the prior quarter’s distribution and was a 9% increase over the third-quarter 2015 distribution. It also said that the third-quarter 2016 coverage ratio was 1.42 times.
Western Gas Partners recently traded at $61.35 and has a market cap of almost $9 billion. Its 52-week range is $25.42 to $61.52, and it has a consensus price target of $60.88 and a yield-equivalent of 5.7%. Its distribution hike history since 2013 is as follows:
- Oct. 27, 2016, $0.845
- July 28, 2016, $0.830
- Apr. 28, 2016, $0.815
- Jan. 28, 2016, $0.800
- Oct. 29, 2015, $0.775
- July 29, 2015, $0.750
- Apr. 28, 2015, $0.725
- Jan. 29, 2015, $0.700
- Oct. 29, 2014, $0.675
- July 29, 2014, $0.650
- Apr. 28, 2014, $0.625
- Jan. 29, 2014, $0.600
MPLX
This partnership announced late last October that its distribution would be $0.515 per common unit for its third quarter, a gain of 1% sequentially. It was also shown to be a 10% gain versus its third-quarter distribution in 2015.
MPLX L.P. (NYSE: MPLX) was trading at $35.80 and has a market cap of $12.7 billion. Its 52-week range is $16.34 to $36.99, and the consensus target price is $39.83. Jefferies just reiterated its Buy rating and $40 target based on a more aggressive drop-down from Marathon. MPLX has a yield-equivalent of almost 6%, and its distribution hike history since 2013 is as follows:
- Nov. 02, 2016, $0.515
- July 29, 2016, $0.510
- Apr. 29, 2016, $0.505
- Feb. 02, 2016, $0.500
- Oct. 30, 2015, $0.470
- July 31, 2015, $0.440
- May 01, 2015, $0.410
- Jan. 30, 2015, $0.383
- Oct. 31, 2014, $0.358
- July 31, 2014, $0.343
- May 01, 2014, $0.328
- Jan. 31, 2014, $0.313
Antero Midstream Partners
Just on January 4, Antero Midstream Partners L.P. (NYSE: AM) announced that its 2017 capital budget and guidance for 2017 would be $525 million. Net income for 2017 is forecast to be $295 million to $335 million, and the distributable cash flow for 2017 was expected to be $395 million to $435 million with coverage of 1.30 to 1.45 times. The company also forecast that its distribution growth guidance is for 28% to 30% in 2017, and that it targets 28% to 30% compound annual distribution growth through 2020.
Antero Midstream was trading at $31.84, and its market cap is $5.6 billion. The 52-week range is $17.00 to $32.25, and the consensus target price is $35.89. Antero’s yield-equivalent is 3.4%. Its distribution hike history since 2014 (the latest we saw) is as follows:
- Nov. 08, 2016, $0.265
- Aug. 08, 2016, $0.250
- May 09, 2016, $0.235
- Feb. 10, 2016, $0.220
- Nov. 06, 2015, $0.205
- Aug. 11, 2015, $0.190
- May 11, 2015, $0.180
- Feb. 11, 2015, $0.094
Investors need to understand that there are no assurances that these MLP giants can continue endless distribution hikes ahead. The reality is that there are many issues that are inside of each outfit and which may also be beyond each outfit’s control.
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