A master limited partnership that can grow its dividend tends to reward investors to a much more than those that don’t grow the payout. Take a look at the following chart of top MLPs Enterprise Products Partners (EPD 0.45%) and Energy Transfer Partners (ETP +0.00%):
EPD Dividend data by YCharts
Do you notice that in the past two years Enterprise’s distribution and units have been rising steadily? Do you also see that Energy Transfer’s distribution has been steady but its units have fallen? That’s why income-seeking investors are best served by investing in MLPs that offer a growing income stream.
A name income investors might want to take a look at is Crosstex Energy (NASDAQ: XTEX) and its publicly traded general partner Crosstex Energy Inc. (XTXI +0.00%). Since 2010 both have offered double-digit-income growth as you can see from the chart below:
Source: Crosstex Investor Presentation
The company has several exciting growth projects in the pipeline which should keep that income flowing even higher in the future. Among them, Crosstex has several projects serving the Gulf Coast petrochemical market including phase one of its Cajun-Sibon expansion. The project, which is expected to be completed in the middle of this year, includes expanding the capacity of its Eunice natural gas liquids fractionator as well as a new natural gas liquids pipeline. Once complete the project will add $40 million-$45 million in adjusted EBITDA, which is a nice boost for a company that generated just $214 million in adjusted EBITDA last year.
Phase two of the Cajun-Sibon expansion should be in service by the second half of 2014. This project will add another $75 million-$85 million in adjusted EBITDA. Crosstex has other smaller projects nearing completion which include finishing phase two of its Riverside Crude Terminal. Once complete by the middle of this year both phases of that project will add about $10 million in fee-based cash flow.
That fee-based cash flow is important for investors, as it’s not sensitive to commodity price volatility. In 2010, 30% of Crosstex’s cash flows were subject to commodity prices. By the end of 2014 just 13% of its cash flow will be sensitive to commodities. By the end of 2014 the company will have spent more than a billion dollars to transform its business. That's money well spent; it not only grows Crosstex's income, but it makes that income more secure.
Looking even further ahead, Crosstex has several additional expansion opportunities that represent another billion dollars in potential capital investments. Among these opportunities are phases three and four at Cajun-Sibon, a third phase at Riverside, and multiple opportunities at its Ohio River Valley assets serving the emerging Utica Shale.
That’s the recipe for continued distribution growth for Crosstex investors. Even better, all that growth comes with a current distribution yield of nearly 7.5%. While that’s in line with what Energy Transfer investors are getting today, it is a lot more than the 4.7% new investors would get by investing in growth at Enterprise. That’s why investors looking for a smaller, growth-oriented MLP with a nice payout should take a deeper look at Crosstex.
