NuStar Energy (NYSE:NS) has come a long way over the past year. The energy company has sold a couple of non-core assets while investing in projects to expand its midstream footprint. The master limited partnership (MLP) has significantly improved its financial profile as a result.

That trend should continue in 2020, which will put NuStar Energy's 8.4%-yielding distribution on an even firmer foundation. The continued improvement in its financial profile makes it an increasingly intriguing option for retirement-focused investors.

A person using a calulator with financial charts on the desk.

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A strong year of execution

NuStar Energy has made excellent progress on its strategic plan over the past 12 months. One of the highlights is the improvement in its balance sheet. The company's debt-to-EBITDA ratio stood at 4.52 at the end of last year's third quarter, above the 4.0 comfort level of most MLPs.

However, after selling more than $500 million in assets in the past 12 months, leverage was a much more comfortable 3.96 at the end of this year's third quarter. Those sales also gave NuStar the financial flexibility to invest in several high-return growth projects. Overall, it's on track to spend between $485 million and $515 million on expansions this year, which have already helped increase the EBITDA from its continuing operations by 10% while its cash flow has jumped nearly 15%.

The company is on pace to generate enough cash this year to cover its 8.4%-yielding payout by 1.3 to 1.4 times. That's a comfortable level for an MLP, as most in the sector target coverage of at least 1.2.

Even more improvements ahead

NuStar's financial metrics should continue improving next year. That's because the company's expansion projects have it on track to grow its EBITDA from between $625 million and $675 million this year up to a range of $715 million to $765 million in 2020. At the midpoint, that's a roughly 14% increase. As a result, the company should generate enough cash to cover its payout by an even more comfortable 1.4 to 1.6 times next year.

That will enable it to retain more money to help finance expansion projects. NuStar's growth-focused spending, however, is on track to decline by 35% next year to a range of $300 million to $350 million. That's because its focus over the coming year will be to invest in low-cost, high-return projects that enhance its existing footprint.

With its investment spending declining even as cash flow is growing, NuStar will have much more financial flexibility next year. That should help push its leverage ratio even lower, which would mean the company could eventually be in line for a credit rating upgrade into investment-grade territory. That would enable it to borrow money at much lower costs, making it cheaper to refinance debt as it comes due. NuStar's balance sheet improvement in the past year has already helped reduce its borrow costs. In May, for example, it issued $500 million of 6% notes due in 2026, which it used to help refinance $350 million of 7.65% notes that matured. By continuing to enhance its financial profile, the company will have even more flexibility to borrow funds at lower costs.

One of many high-yielding options for retirees

MLPs like NuStar Energy have been working hard in recent years to bolster their financial profiles. That's making them much less risky for income-focused investors like retirees. Unfortunately, that also means that NuStar is in a crowded field as the sector is rich with high-yielding options these days, which gives investors lots of choices.