Midstream limited partnerships Buckeye Partners (BPL) and NuStar Energy (NS) both sport yields in excess of 8.5%. That's pretty enticing, considering that industry bellwether Enterprise Products Partners' (EPD -0.25%) distribution yield is a far more subdued 5.9%. There are big differences here, however, that need to be examined more closely before investors jump aboard Buckeye or NuStar. Here's what you need to know to figure out which, if either, is the better buy.

A broken promise

Although not public in its current form the entire time, Buckeye Partners traces its history back to the late 1800s, when it was a subsidiary of the Standard Oil Company. While that's an impressive pedigree, there's a more important history to examine -- distributions. After more than two decades of increasing the distribution regularly, Buckeye was forced to pause hikes in 2017 and eventually trimmed the payout by 40% in 2018.   

A welder working on a pipeline

Image source: Getty Images

What happened? The company made a large, debt-fueled acquisition that didn't work out particularly well. In fact, it ended up selling the asset for less than what it paid. At the same time, management was also starting to ramp up spending on growth projects, such as building pipelines. With debt levels elevated, something had to give -- and it was the distribution. The biggest problem with all this, however, is that management was telling investors that the dividend was safe. There's a huge trust issue here at this point.

That said, Buckeye units have recovery potential as it works to right the ship. And it has made some notable progress. The distribution cut has freed up capital that it has used to reduce leverage and invest in growth projects. Although long-term debt only fell around 2.5% in 2018, that was after years of steady increases. Distribution coverage, meanwhile, was around 1 times in 2018, but roughly 1.2 times in the fourth quarter. In other words, while lower, it looks like the current distribution is on fairly solid ground.   

As the partnership's construction projects begin to bear fruit, investors are likely to reward Buckeye with a higher unit price. There's a reason to be positive here, but only if you can get past the trust issue created by the distribution cut and a debt-fueled acquisition that didn't pan out and had to be sold at a loss (which is an incredibly poor use of unit-holder capital).

Another troubled name

NuStar is no stranger to distribution cuts, either. The partnership stopped increasing the distribution in 2011 and eventually cut the payment 45% in 2018. That cut was tied to the acquisition of general partner NuStar Holdings GP. This move, which is known as an internalization transaction, resulted in NuStar effectively running itself. (For reference, Buckeye internalized its general partner many years ago.) 

NS Dividend Per Share (Quarterly) Chart

NS Dividend Per Share (Quarterly) data by YCharts

There are a number of benefits from this transaction, including the fact that it no longer has to pay fees and incentives to a general partner. However, the move required the issuance of 10.2 million new units, all of which receive regular distributions. That, added on to the fact that NuStar paid nearly $1.5 billion to acquire a midstream pipeline business in mid-2017, made maintaining the distribution too heavy a burden.   

Like Buckeye, however, NuStar appears to be heading in a better direction today. A non-core asset sale in 2018 allowed it to reduce long-term debt by roughly 4.5% in 2018. And it was able to report robust distribution coverage of 1.4 times in the fourth quarter. Coverage was also 1.4 times for the full year. Like Buckeye, the distribution appears secure as NuStar charts a new course.   

NS Financial Debt to EBITDA (TTM) Chart

NS Financial Debt to EBITDA (TTM) data by YCharts

Continued progress along its new path, meanwhile, is likely to see NuStar rewarded with a higher unit price. But income investors shouldn't overlook the distribution cut or the fact that the pipeline assets acquired in 2017 are now a core growth engine. In other words, the cut was part of what appears to be a major corporate reset. NuStar is charting a very different course today than it had in the past.

Maybe boring is better

Essentially, Buckeye and NuStar are special-situation stories. Buckeye is trying to recover from a bad investment decision and NuStar has shifted gears, betting on an acquisition to drive long-term growth. Although they appear to be in much better positions to support their distributions today, when you add in the distribution cuts at these two partnerships, they are not the types of stories that conservative investors should get too excited about. If the siren song of high yields here are still calling you, however, it might be best to look at Buckeye, which isn't making as big a shift in its basic approach as the one NuStar is undertaking.

Most investors in search of a reliable stream of income would be better off with a midstream partnership like Enterprise Products Partners -- it's a bellwether for a reason. Moreover, it has continued to increase its well-covered distribution for more than two decades at this point. Although its yield is lower, Buckeye and NuStar are really only appropriate for more aggressive investors willing to bet that this pair of high-yielders have finally gotten their financial houses in order.