Last October, Eagle Rock Energy Partners cut its distribution more than 30%. Master limited partnerships are known for growing distributions. At worst, they keep them flat so, naturally, investors headed for the exits. The same scenario met Boardwalk Pipeline Partners earlier this week when it cut its payout more than 80%. These two cuts -- less than six months apart -- have got some investors reconsidering their MLP holdings and looking for new ideas.

Today, we're evaluating the distribution history of four MLPs that shouldn't let you down: Western Gas Partners (WES 1.44%), Plains All American Pipeline (PAA 2.12%), Williams Partners (NYSE: WPZ), and Magellan Midstream Partners (MMP). Each MLP in this group has increased its distribution every single quarter for at least the last four years.

Let's begin by taking a look at the graph below that shows the distribution records for our four MLPs over the last five years:

WES Dividend Chart

WES Dividend data by YCharts.

All four of these partnerships grew their distributions by more than 35% since 2009, and with the exception of Magellan, did so in a remarkably smooth fashion. It's worth noting here that, though Plains has only increased its distribution for the last 18 straight quarters, its overall record is 37 out of the last 39 straight quarters; a rich history indeed.

Now, regularly increasing distributions is all well and good, provided the MLP is generating enough cash to cover the payouts. If it isn't, that could be an indication that trouble lies ahead. That's why it's important to pay attention to the other distribution metric when it comes to evaluating MLPs: the coverage ratio.

The coverage ratio is simply an MLP's distributable cash flow divided by the distributions paid for the corresponding quarter. Here's how the ratios shake out for our group:


Current Coverage Ratio

Western Gas Partners

1.28 times

Plains All American Pipeline

1.28 times

Williams Partners

0.90 times

Magellan Midstream Partners

1.42 times


Williams Partners hasn't reported its fourth-quarter earnings yet (it does so Wednesday), so there is still a chance it will generate positive coverage for the full year. It's important to understand the ins and outs of an MLP's specific business footprint -- if there is any seasonality in its operations, it could affect its coverage ratio from quarter to quarter. That said, if an MLP is not posting coverage greater than 1.0 times payouts for the full year, you could have a big problem on your hands.

The other three MLPs listed above post excellent ratios. Magellan Midstream looks excellent in both categories. The MLP has been on an absolute tear of late, recently hitting a 52-week high.

Bottom line
These two numbers are not the only ones you need to know before buying a master limited partnership, but they do give you some sense of how strong an MLP is from a mile up. As always, if you do plan to invest in one of these vehicles, make sure ample research is part of your process.