What happened
Units of midstream industry bellwether Enterprise Products Partners LP (EPD 0.18%) rose 12.5% in January, according to data provided by S&P Global Market Intelligence. That's a pretty big move for this conservatively run limited partnership. It was also a dramatic reversal of 2018, when the $60 billion giant saw its price fall around 7%, with a couple of long up and down swings in the mix. But Enterprise was hardly alone in its January jump.
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For example, relatively small peer Crestwood Equity Partners LP (CEQP) ended the month up 13%. ONEOK (OKE 0.26%), which is structured as a regular corporation and not a limited partnership, rose an impressive 19%. And Canadian midstream owner Pembina Pipeline (PBA 0.44%) jumped 20% (like ONEOK, Pembina is not structured as a limited partnership). The midstream sector across the board had a pretty decent month.
So what
The big-picture view of January is that investors switched from a risk-off mentality at the end of 2018 to a risk-on mind-set in the beginning of 2019. The S&P 500 Index, for example, was up roughly 8% in January. So the shift was an across-the-board change in sentiment that had far-reaching effects. That these four midstream players would outperform to the upside isn't all that surprising, either.
While the S&P 500 fell around 15% from its highs in the final months of the year, each of these midstream names lost more. Enterprise was down nearly 18% from its highs, Pembina saw a 19% drop, ONEOK lost 24%, and Crestwood "beat" them all on the downside with a huge 30% decline. With investors becoming more positive, it isn't surprising that these beat-up names would roar back just a little bit more than the broader market.
There wasn't any particular news in January that would justify such large market jumps. Enterprise and ONEOK both announced distribution increases in the middle of the month. Enterprise's hike was a tiny 2.4% year over year, as it continues its multiyear quest to fund more of its growth spending with internally generated funds. ONEOK's mid-month hike left its dividend 12% higher than it was a year ago. That sounds great, but the increase was only a half-cent a share -- the big hikes behind the 12% year-over-year increase took place last year. In other words, not big news. Crestwood and Pembina also announced dividends, but there was no change in the payment.
Other than that, only Enterprise reported earnings in the month -- but on the very last day of January. It was pretty good reading, with distributable cash flow up 33% year over year in 2018. Distribution coverage was an incredibly strong 1.5 times, showing that it is making good progress in its efforts to self-fund its growth. However, the timing of the release suggests that investors weren't reacting to this news when they pushed the stock steadily higher the other 30 days of the month. And Enterprise's results were really just a continuation of a solid trend for one of the best-run midstream partnerships, though management was rightly proud of what it achieved in the quarter and the year.
Now what
All in, the jump at these four midstream names was more about investor sentiment than anything that changed in the midstream space or at these specific companies. It was a welcome upturn, of course, after such a difficult end to 2018, but you shouldn't read too much into it. The outlook for the midstream sector and each of these four names within it is pretty much the same as before.
