Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is BreitBurn's Distribution Still Safe?

Short-sellers have called BreitBurn Energy Partners  (NASDAQOTH: BBEPQ  )  10.25% distribution "largely a mirage". Meanwhile, the company believes its payout is safe, which is why it has raised it by 4.3% over the past year, with the most recent boost just last month. The question that investors must be asking is: Whom should we believe? Let's take a look. 

Danger level breached
The first quarter wasn't a good one for the company. Multiple operational and pricing issues caused the company's distribution coverage ratio to fall to a worrisome 0.67 times, which is well below the critical 1.0 level. CEO Hal Washburn, however, calmed investors' fears by saying that the company had a plan in place to get its payout back above 1.0 before the benefit of any acquisitions.

When looking at BreitBurn's peers it's clear that the company had a lot of work to do to catch up. For example, more conservative peer Vanguard Natural Resources  (NASDAQ: VNR  )  already had a payout ratio right at 1.0 times in its first quarter. The company was able to further improve the payout to 1.05 times at the end of this past quarter, meaning that its investors have no need to worry about a looming pay cut. Meanwhile, more aggressive peer LINN Energy  (NASDAQOTH: LINEQ  ) , whom BreitBurn has been likened to, had a payout ratio of 0.88 times in the first quarter and 0.89 last quarter, both well above BreitBurn's low mark. While LINN has struggled with the same operational and pricing issues as BreitBurn, it was able to maintain a higher distribution coverage ratio. 

Down, but not out
In three short months BreitBurn was able to deliver on its promises to get its payout on more solid ground. In fact, this past quarter the company was able to deliver distributable cash flow of exactly $0.48 per unit, which represents exactly a 1.0 distribution coverage ratio. Further, the company sees its distribution coverage ratio increasing throughout the year as it continues to deliver on its oil-focused capital program. 

What's truly impressive is that the company was able to deliver such a jump in its coverage ratio without the benefit of an acquisition (its Postle acquisition didn't close until after the quarter ended). That means BreitBurn should be able to deliver a payout ratio in a range of 1.4-1.5 times in the second half of the year thanks to the benefits its oil-focused capital program and its recently closed acquisition. Clearly, the distribution is safe and the company easily has the capacity to continue to grow is payout later this year. 

The bottom line
While the company's coverage ratio during the first quarter was worrisome, BreitBurn did a fantastic job to solidify its payout. In fact, the company has plenty of capacity to issue equity in order to pay down the debt it took on to complete the Postle acquisition without causing its coverage ratio to drop anywhere near the danger zone. What that means is that BreitBurn's distribution is not only still safe; right now, it's really rock solid.

Dividend stocks like BreitBurn can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 12, 2013, at 2:10 PM, jad9000 wrote:

    The same crooks who launched the continuing short attack on Linn are behind the same attack on Breitburn. The SEC is investigating the wrong people - jail the writers, "analysts" and hedge funds who have attempted to defraud the investing public.

  • Report this Comment On August 12, 2013, at 2:27 PM, zorro6204 wrote:

    This is what they said Q1:

    "Our coverage ratio for the quarter was 0.67 times, which for this short term is well below our target range of 1.1 to 1.2 times. However, we have planned for our coverage ratio to increase dramatically throughout the year, even before the benefit of accretive acquisitions. Based on our capital program and change in production mix with an emphasis on oil, we expect our distribution coverage ratio to increase to slightly below 1 times during the second quarter and to increase to our target range of 1.1 to 1.2 times in the fourth quarter."

    So they did a little better than they forecast for Q2. I have been critical of BBEP's past management decisions, so when I saw a .67 number come up, I freaked and fled. But I'm back, the coming numbers are too good to ignore at this price (thanks to the LINE mess for that), even with an offering sure to come. For awhile, at least, BBEP distributions are definitely safe.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2591178, ~/Articles/ArticleHandler.aspx, 9/26/2016 12:07:45 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,108.87 -152.58 -0.84%
S&P 500 2,149.20 -15.49 -0.72%
NASD 5,264.04 -41.70 -0.79%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 11:47 AM
BBEPQ $0.06 Down +0.00 -2.65%
BreitBurn Energy P… CAPS Rating: ****
LINEQ $0.05 Up +0.00 +1.20%
Linn Energy, LLC CAPS Rating: **
VNR $1.04 Up +0.01 +1.22%
Vanguard Natural R… CAPS Rating: ***