Are These MLP's Distributions Safe for Investors?

Investors love master limited partnerships because of their high yields and mostly reliable distributions. Sometimes, however, we get caught up in the yield and forget how important a reliable distribution really is. Today we're focusing on that reliability with some of our favorite natural gas transportation MLPs: Enterprise Products Partners (EPD -0.31%), Energy Transfer Partners (ETP), Boardwalk Pipeline Partners (BWP), and ONEOK Partners (OKS).

Got it covered?
To get a sense of an MLP's ability to make its distributions every quarter, we want to take a look at its distribution coverage ratio, which is simply its distributable cash flow divided by the total amount of distributions it paid out. Let's take a look at the third-quarter data for our partnerships:

Source: Company releases. Dollar figures in millions .

Right off the bat, it's easy to see that Boardwalk Pipeline Partners is the lone wolf here. The partnership had a hard time mitigating lower revenue in all three of its segments. Despite this, operating revenue still came in $5 million higher year over year, due to a $12.5 million gain from the sale of storage gas. As a result of the rough quarter, the partnership held its distribution flat quarter over quarter, and still could not cover it .

On the flip side of that story, Energy Transfer Partners was able to increase its distribution for the first time in five years and cover its payout. Management is targeting 1.05 times coverage going forward, which is right in the middle of the range that the ratings agencies like to see for pipeline MLPs.

Enterprise Products Partners once again easily covers its payout. Its posted coverage ratios no lower than 1.5 times in every quarter this year, and given that it also holds the MLP record for most consecutive quarterly distribution increases at 37, investors know this is one of the safest distributions in the space.

Finally, we have ONEOK Partners. Unlike Boardwalk Pipeline Partners, ONEOK was able to cover its distribution without any trouble this quarter despite recording lower operating income and distributable cash flow, compared to a year ago. Volumes are growing, but natural gas liquids prices continue to hamper ONEOK's margins.

Bottom line
Despite three of our four MLPs posting positive coverage in the third quarter, only Enterprise really presents a case worth writing home about. All this goes to show that the distribution coverage ratio is not the only metric that should be taken into account when evaluating possible investment opportunities. It is important, though, and should be an integral part of any investment thesis when it comes to master limited partnerships.

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