The Alerian Index is handily outperforming the S&P 500 through the first five months of the year, but given the latter's measly 2.5% return year-to-date, that's not saying much. Still, there are many master limited partnerships that are soaring well above the Alerian's 6.4% gain, and today we're taking a closer look at the top five: Emerge Energy Services (NYSE: EMES), Phillips 66 Partners (PSXP), Oiltanking Partners (NYSE: OILT), Susser Petroleum Partners (NYSE: SUSP), and Tallgrass Energy Partners (NYSE: TEP).
The run-up
Emerge Energy Services is leading the way, posting gains just north of 100% this year:
EMES Total Return Price data by YCharts
Emerge is a variable rate MLP that focuses on sand production for hydraulic fracturing, and fuel processing and distribution. As a variable rate MLP, it has no minimum quarterly distribution. That said, it operates five assets, differentiating itself from other variable rate MLPs that typically operate only one or two assets. It increased its most recent distribution by 13% quarter over quarter after increasing adjusted EBITDA nearly 62% year over year. The strong distribution growth has kept Emerge Energy Services' yield at 5.2% despite the run-up in unit price.
Phillips 66 Partners has not been able to manage that feat. Its shares soared after its IPO last summer, and continued to climb steadily through the end of 2013 right into 2014. It's currently yielding 1.8%, and some analysts think it's fairly valued right now at roughly $60 per unit, anticipating price growth will slow as the year continues. Investors have had a hard time looking away, however, as distributions grow and parent company Phillips 66 increases its focus on the midstream sector.
Oiltanking Partners has steadily grown its unit price more than 53% this year, putting together back-to-back quarters of excellent results. The partnership grew adjusted EBITDA 80% in 2013, and 113% in the fourth quarter. It continued to climb over those impressive numbers in the first quarter of this year, up 57% to $40.4 million. All of that led to first quarter distribution growth of 5.3% sequentially, and 22.2% year over year. The partnership remains focused on organic growth projects, which bodes well for investors.
Susser Petroleum Partners was having a good year, up roughly 10% through April. Then its parent company struck a deal with Energy Transfer Partners that will ultimately result in the dropdown of ETP's retail gas station business. Shares of Susser Petroleum Partners took off on the news and are now up roughly 42% year to date. Units of SUSP have only been trading since September of 2012, and it really floated under the radar prior to the ETP deal. It has grown its distribution roughly 3.5% quarter over quarter for the past year, and maintained distribution coverage above 1 while doing so, which is a great sign for investors.
Tallgrass Energy Partners hit the market last year after it acquired some assets from Kinder Morgan Energy Partners. The fledgling partnership has wasted no time growing its footprint -- and its distribution. Investors have responded favorably by driving up its unit price more than 42% year to date. The biggest news of late came back in April, when management announced that Tallgrass would acquire Trailblazer Pipeline Company LLC from Tallgrass Development for $164 million. The deal is effectively a dropdown, the first for the partnership, and was immediately accretive. Management expects the transaction to add at least $0.20 to its second quarter distribution. Time will tell if that pans out, but it gives investors a solid handle on what management's expectations are, and its ability to follow through on those goals.
Bottom line
The domestic energy story continues to present investors with compelling portfolio ideas. Soaring unit-price performance is not necessarily a flashing "buy" signal, but it does serve to remind us of the depth and breadth of investment opportunities in the MLP space right now.
