The 3 Best MLPs of 2017

For the most part, 2017 was a disappointing year for investors in master limited partnerships (MLPs). On average, the 39 members of the Alerian MLP Index declined in value this year, even after factoring in their lucrative distributions. That said, several bucked that trend and provided investors with positive returns this year, led by the following trio:

Data source: YCharts. Returns through Dec. 14, 2017. Total return = change in unit price plus distribution income.

Here's a look at what made them the best-performing MLPs in 2017.

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The rookie sensation

Noble Midstream Partners went public in September of 2016 to help drive the growth of its parent company, Noble Energy (NBL). While the oil and gas company initially seeded its MLP with several assets, the fast-growing midstream company acquired several more in its first full year of operations. The buying binge started in February, when it formed a 50/50 joint venture with fellow MLP Plains All American Pipeline (PAA 0.58%) to acquire the Advantage Pipeline for $133 million. Noble Midstream then built a 15-mile pipeline to supply Advantage with crude, while Plains All American constructed another line to connect it with one of the company's facilities. Noble Midstream followed that deal up in June with the acquisition of additional interests in two midstream systems from its parent for $270 million. Meanwhile, it recently capped the year off by forming another 50% joint venture to acquire Saddle Butte Rockies Midstream for $625 million in cash.

These acquisitions fueled significant growth for the company this year. Last quarter, for example, distributable cash flow was $41 million, which was a substantial increase from the $3 million it pulled in during the year-ago quarter. That rapidly growing cash flow stream enabled the company to increase its distribution to investors each quarter, keeping it on a trajectory to boost the payout by a 20% compound annual growth rate through 2020. That fast-growing payout had income investors climbing aboard this year.

Lifting the weight of uncertainty

Teekay LNG Partners' unit price has ebbed and flowed for much of the year like the seas that carry its "floating pipelines." The MLP, which owns tankers that transport liquified natural gas (LNG) and other energy products under long-term contracts, initially spiked at the end of January after securing more than $900 million in financing for its expansion efforts. That said, the company's financial performance dipped a bit this year, with distributable cash flow falling in all three quarters. Despite those weaker results, units stayed afloat. That positioned them to take off at the end of the year, when the company secured additional financing, which would help it fund nearly all of its remaining commitments for the LNG carriers it currently has under construction.

Overall, Teekay LNG Partners has secured $2.2 billion in financing over the past year, which gives the company the money needed to continue adding vessels to its fleet. Those new additions should help drive cash flow higher in the coming years, which investors anticipate will enable the company to start sending more money their way.

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Steady growth again this year

While GasLog Partners also owns LNG carriers, its financial results have been much more stable than those of Teekay LNG. That's because the company buys operating tankers secured with long-term leases from its parent company, GasLog (NYSE: GLOG), instead of taking on the construction and financing risk. Those steady additions, including three this year, have helped drive revenue and cash flow higher, enabling the company to continue increasing its payout to investors, which is up 8.3% this year. Meanwhile, since its IPO, GasLog has grown its distribution 38%, or by a 10% compound annual rate. 

GasLog Partners remains on pace to continue that steady growth in 2018. As things stand right now, GasLog Partners expects to boost its payout another 5% to 7% next year, which should fuel steady total returns for investors in 2018 as well.

No magic formula for success this year

The best performing MLPs of 2017 all took different routes to the top. Noble Midstream jumped out of the gates and never looked back as it went on a buying binge. Meanwhile, Teekay's rise was more due to the lifting of uncertainty while GasLog Partners' was because its steady business model continued delivering results. In one sense, that's what makes picking winners on a yearly basis so hard, because big one-year gains seem to be a bit more random. That said, over the longer term, the best performers tend to be those companies that can deliver steady growth year in and year out, which seems to give Noble Midstream and GasLong a leg up on Teekay to potentially make this list again in future years.