A Trio of High-Yield MLPs
11/14/2016 7:00 am EST
Investors are understandably wary of the oil and gas MLP space, as many s had to cut or suspend their payouts over the past year due to the decline in oil and gas prices, observes Bob Ciura, contributing editor to Daily Profit.
While it is important to remember that no distribution is ever guaranteed, there are still high-quality MLPs that have continued to raise their distributions over the past several months.
The following three high-yield MLPs should be considered blue chips in their industry. They reward investors with high yields and steady distribution growth.
Shell Midstream Partners (SHLX)
Shell Midstream is a growth-oriented MLP; it focuses on growth of cash flow and distributions, rather than providing investors with a sky-high current payout.
So while it may not have the highest yield around — its current distribution yield is 3.8% -- it makes up for this with strong growth.
On a year-over-year basis, Shell Midstream’s next distribution is 29% higher than the same quarterly payout last year. This is a huge growth rate for an MLP.
The reason for Shell Midstream’s high distribution growth rate is because of its strong asset base. Distributable cash flow rose 17% last quarter, despite the pressure of low commodity prices
Enterprise Products Partners (EPD)
Enterprise Products operates 49,000 miles of pipelines. Last year, it generated $4 billion of distributable cash flow. It maintained a satisfactory 1.3 distribution coverage ratio in 2015.
Operating profit increased 3% over the first half of 2016, year over year. Distributable cash flow is up 4% in the same period.
This growth allowed Enterprise Products to raise its distribution by 5% year over year. This is the 58th distribution increase since Enterprise’s 1998 IPO, and its 49th consecutive quarterly raise.
The stock has a current yield of 6%, which is approximately triple the average dividend yield in the S&P 500.
Magellan Midstream Partners (MMP)
Magellan Midstream owns the longest refined petroleum products pipeline system in the US. Its huge network of assets gives the company access to nearly half of US refining capacity.
Magellan’s distributable cash flow increased 7% last year, which set a record for the company. It is seeing good results this year as well.
The company recently increased its quarterly distribution by 10% from the same distribution last year. This increase was the 58th since its 2001 IPO.
Magellan expects 10% distribution growth this year, and 8% growth next year. It intends to maintain a distribution coverage ratio of at least 1.2 times in both years.
Magellan has a 4.8% forward distribution yield. This is more than twice the average dividend yield in the S&P 500.
Bob Ciura, contributing editor to Daily Profit