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 (NYSE: EPD  ) , Energy Transfer Partners (NYSE: ETP  ) , Boardwalk Pipeline Partners (NYSE: BWP  ) , and ONEOK Partners (NYSE: 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:

MLP

DCF

Dist. Paid

Coverage Ratio

Enterprise Products Partners

$908.0

$618.4

1.47

Energy Transfer Partners

$527.0

$463.0

1.14

Boardwalk Pipeline Partners

$116.6

$129.5

0.90

ONEOK Partners

$187.3

$164.6

1.14

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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Read/Post Comments (4) | Recommend This Article (2)

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 December 01, 2013, at 9:37 AM, Blackhawk wrote:

    MLPs / Trusts??

    I've just commenced some research into above topic and am not quite sure how a MLP works.

    1. Does the (if there is) the common stock's gains/losses have to be compensated before a MLP dividend payout (quarterly or otherwise)?

    2. What, if any, cause and effect would circumstance a shift in:

    a - posted price via say NYSE

    b - stock price up/down of the mothership co. (i.e. Sandridge Energy (SD vs. its trusts say PER etc.)

    c - At per market share price and dividend potential payout with the MLP, I am not seeing an advantage of buy/grow with the main sticok vs. the MLF

    As i may be missing the obvious, I would greatly appreciate a quick tuition on the subject.

    thanks to any Fool whom may care to comment.

    Blackhawk

  • Report this Comment On December 28, 2013, at 7:46 PM, geecheegirl wrote:

    I am continually dismayed by these conflicting articles MF writers keep churning out. It has become increasingly clear that one cannot place much value on these "views" or opinions. This article tells us Boardwalk Pipeline Partners could not cover their distribution even after keeping it flat. I had just read the MF special report titled "3 Stocks for America's Next Energy Boom" in which another MF writer had pitched Boardwalk Pipeline Partners as one of those 3 "must have" stocks for this next energy boom. The author calls this company "a rare gem in the investing universe" and goes on to say "investors should be able to collect a steady stream from this high yielding natural gas Juggernaut"....."safe yields"....."Boardwalk's high yield is also insulated by a fortress-like moat....." ..... "A HOME-RUN HITTER WITH A DEPENDABLE BATTING AVERAGE"!!!....."STABLE DISTRIBUTION"..... Really??? Now needing dependable income to supplement my SS income, this article was music to my ears. I quickly did a little research and turned up this other article that debunks that first article that covered BWP in that special report. So I know now to take a hard look at the other two stocks pitched in that report. That special report was written by Joel South. PLEASE, MF, STOP OFFERING UP REPORTS AND UNRELIABLE INFORMATION. SOME OF US NEED TO BE ABLE TO RELY ON WHAT YOU PRINT. THAT WAS A "SPECIAL" REPORT!!!

    Motley Fool, please rein in your contributors and only allow the ones who know their game to submit articles for the public's viewing. You used to be much more dependable. I know these conflicting articles were written not that far apart. You seem to be cranking out articles just for the sake of quantity these days. Please get back to quality and accuracy.

  • Report this Comment On January 22, 2014, at 1:12 PM, mueltrain wrote:

    Also, one can pay little attention to Zack, he had ALSK a strong buy about fifteen months ago - take a look at AlSK on 01/22/14

  • Report this Comment On January 22, 2014, at 1:13 PM, mueltrain wrote:

    not I mean

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