Distributions at These 4 MLPs Won't Let You Down

Last October, Eagle Rock Energy Partners cut its distribution more than 30%. Master limited partnerships are known for growing distributions. At worst, they keep them flat so, naturally, investors headed for the exits. The same scenario met Boardwalk Pipeline Partners earlier this week when it cut its payout more than 80%. These two cuts -- less than six months apart -- have got some investors reconsidering their MLP holdings and looking for new ideas.

Today, we're evaluating the distribution history of four MLPs that shouldn't let you down: Western Gas Partners (NYSE: WES  ) , Plains All American Pipeline (NYSE: PAA  ) , Williams Partners (NYSE: WPZ  ) , and Magellan Midstream Partners (NYSE: MMP  ) . Each MLP in this group has increased its distribution every single quarter for at least the last four years.

Let's begin by taking a look at the graph below that shows the distribution records for our four MLPs over the last five years:

WES Dividend Chart

WES Dividend data by YCharts.

All four of these partnerships grew their distributions by more than 35% since 2009, and with the exception of Magellan, did so in a remarkably smooth fashion. It's worth noting here that, though Plains has only increased its distribution for the last 18 straight quarters, its overall record is 37 out of the last 39 straight quarters; a rich history indeed.

Now, regularly increasing distributions is all well and good, provided the MLP is generating enough cash to cover the payouts. If it isn't, that could be an indication that trouble lies ahead. That's why it's important to pay attention to the other distribution metric when it comes to evaluating MLPs: the coverage ratio.

The coverage ratio is simply an MLP's distributable cash flow divided by the distributions paid for the corresponding quarter. Here's how the ratios shake out for our group:


Current Coverage Ratio

Western Gas Partners

1.28 times

Plains All American Pipeline

1.28 times

Williams Partners

0.90 times

Magellan Midstream Partners

1.42 times


Williams Partners hasn't reported its fourth-quarter earnings yet (it does so Wednesday), so there is still a chance it will generate positive coverage for the full year. It's important to understand the ins and outs of an MLP's specific business footprint -- if there is any seasonality in its operations, it could affect its coverage ratio from quarter to quarter. That said, if an MLP is not posting coverage greater than 1.0 times payouts for the full year, you could have a big problem on your hands.

The other three MLPs listed above post excellent ratios. Magellan Midstream looks excellent in both categories. The MLP has been on an absolute tear of late, recently hitting a 52-week high.

Bottom line
These two numbers are not the only ones you need to know before buying a master limited partnership, but they do give you some sense of how strong an MLP is from a mile up. As always, if you do plan to invest in one of these vehicles, make sure ample research is part of your process.

The Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

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: 2839502, ~/Articles/ArticleHandler.aspx, 9/4/2015 12:12:45 AM

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...

Aimee Duffy

Contributing to since 2011.

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

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

9/3/2015 4:06 PM
MMP $70.19 Down -0.20 -0.28%
Magellan Midstream… CAPS Rating: *****
PAA $35.18 Up +0.25 +0.72%
Plains All America… CAPS Rating: *****
WES $57.36 Down -0.12 -0.21%
Western Gas Partne… CAPS Rating: ***
WPZ $41.62 Up +0.65 +1.59%
Williams Partners… CAPS Rating: *****