Sunoco Logistics Partners (NYSE: SXL) is a fraction of the size of some of the other major players in the midstream space, such as Energy Transfer Partners (ETP) or Kinder Morgan Energy Partners (NYSE: KMP), but that doesn't mean it should be ignored. Today we're looking at three reasons Sunoco Logistics might be a good fit for your portfolio.

1. Financial fortitude
There are many metrics that investors care deeply about when it comes to MLPs, and Sunoco Logistics performs quite well on most of them.

Let's start with distributions. The partnership posted 22% distribution growth year over year in the third quarter. Its distribution coverage ratio for the quarter -- distributable cash flow divided by distributions paid -- was 1.84 times its payout. That is exceptional growth matched with exceptional coverage. The icing on the distribution cake is that Sunoco Logistics pairs those stats with 34 consecutive quarterly increases, something that neither Kinder Morgan nor Energy Transfer Partners has done recently.

In addition to its healthy distribution story, the partnership is on top of its debt. It currently sports 2.5 times debt to EBITDA, which is incredibly low for the space.

2. Diversity
Whereas a lumbering behemoth like Kinder Morgan can command diversity with billion-dollar acquisitions of companies such as El Paso or Copano Energy, it's not easy for small midstream partnerships to be efficient and diverse. Sunoco Logistics is attempting to pull it off.

Geographic diversity is important -- SXL has that with operations in Montana, the Midwest, Appalachia, and all over Texas and Oklahoma -- but economic diversity is arguably more important.

With that in mind, let's break out the partnership's adjusted EBITDA by segment, as of the end of the third quarter:

Source: Company press release.

While 54% adjusted EBITDA from any one segment may not scream diversity, for its size this is actually a decent level of business mix. There is room for improvement, however, and that should come as next year's various projects come online and begin to generate revenue.

3. Future outlook
While we're on the topic, let's talk about next year. Sunoco Logistics has no fewer than five major new projects or expansions coming online in 2014. Behold the approximate start-up dates:

  • Permian Express 1 ramp-up: early 2014.
  • Allegheny Access: mid-2014.
  • Eaglebine Express: mid-2014.
  • Mariner East 1 Propane: second half of 2014.
  • Granite Wash Extension: Q4 2014.

It's an impressive slate for such a small company. Not only is there geographic diversity here, but the projects will also improve SXL's business mix, as they range from crude oil pipelines like the Permian Express, to refined products with the Allegheny Access project, to an NGL project with the Mariner East.

The most important part about all of this growth, however, is that every one of the aforementioned projects generates fee-based income. That, in turn, will produce reliable cash flows for SXL, and it of course will be looked upon favorably by Energy Transfer Partners and Energy Transfer Equity (ET 1.97%), which hold the general partner stake in Sunoco Logistics.

Bottom line
Sunoco Logistics presents a very compelling investment idea right now. That is, it is mature enough as an MLP to have a solid history indicating that management knows what it's doing, while still small enough that new projects will impact its bottom line. It is fiscally fit with a terrific outlook for growth and at the very least is one for the watchlist.