Photo Credit: Flickr/Tax Credits
Searching for high yields is a great way to discover new stock ideas. Sometimes, however, a high yield is only a temporary pop over the lifetime of an investment. Today we'll be examining five high-yielding master limited partnerships, taking a closer look at the distribution coverage ratio and distribution growth record for each one.
The stats
We'll start with the distribution coverage ratio, which refers to a partnership's available distributable cash flow, and the amount that it actually paid out in distributions to its limited partners. A coverage ratio is considered healthy when it comes in greater than 1.0 times distributions paid.
|
MLP |
Yield |
DCF |
Distributions Paid |
Coverage Ratio |
|---|---|---|---|---|
|
PVR Partners (NYSE: PVR) |
9.59% |
$49.0 |
$49 |
1.00 |
|
EV Energy Partners (NASDAQ: EVEP) |
8.30% |
$26.1 |
$33.9 |
0.77 |
|
Southcross Energy Partners (NYSE: SXE) |
8.40% |
$2.6 |
$4.9 |
0.53 |
|
Calumet Specialty Products Partners (CLMT +0.00%) |
9.12% |
($2.5) |
$47.4 |
0.00 |
|
Energy Transfer Partners (ETP +0.00%) |
6.85% |
$442.0 |
$468.0 |
0.94 |
Source: Company filings
It's not a pretty-looking group, that's for sure. The worst off here is clearly Calumet Specialty Products, which posted negative distributable cash flow in the second quarter and therefore couldn't cover one red cent of the $47.4 million it paid out in distributions.
The only MLP on this list that passes the coverage ratio test is PVR Partners. Though it looks outstanding here, in the grand scheme of the MLP universe, there are partnerships with coverage ratios that provide much more wiggle room.
Now let's take a look at distribution growth, for our five high-yielders. The chart below shows the percentage change over the last five years:
PVR Dividend data by YCharts
Calumet looks great here, but the rest of our group has not done a tremendous job of increasing its distributions over the past five years.
You'll notice Southcross Energy is not on this list, because it only went public last November and does not have five years of distribution history. It has issued distributions for three quarters, posting a 67% increase between its first and second distributions, and holding it flat between its second and third.
Energy Transfer Partners made a big splash earlier this month when it announced it would be increasing its distribution next quarter, the first increase in five years. After much speculation as to when management would increase its payout, limited partners will be rewarded with a $0.01 increase per unit for the third quarter, and another $0.01 increase on top of that for the fourth quarter.
You can barely make out EV Energy Partners' label on the chart, but it's 2.4%. Certainly nothing to write home about at first blush, but the partnership has actually increased its distribution every quarter since February of 2007. It doesn't wow us because since 2009, the increases have only been by $0.001.
PVR Partners looks to be in the best overall shape. Its distribution history isn't great, but it isn't terrible either. Its coverage ratio is the best of this lot, and investors really like that PVR no longer has a general partner to pay off.
Bottom line
A yield can be your first introduction to a company, but don't let it be your last. The data we examined today shows that behind these high yields hide weak coverage ratios, and shoddy payout histories.
