Please ensure Javascript is enabled for purposes of website accessibility

Instant Analysis: Sunoco Logistics Partners Raises its Dividend by 5%

By Eric Volkman - Feb 6, 2016 at 7:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The hike is the partnership's 43rd in a row.

What happened?
The energy sector is in turmoil given the seemingly endless drop in oil prices, but not every enterprise is in cut-and-run mode. Master Limited Partnership Sunoco Logistics Partners (NYSE: SXL) -- one of several MLPs under the umbrella of Energy Transfer Equity (NYSE: ETP) -- is apparently weathering the storm, as it just raised its shareholder distribution. The new payout amounts to just under $0.48 per unit, 5% higher than previous recent distributions.

The partnership is a habitual distribution raiser; in the press release heralding the latest increase, Sunoco Logistics Partners did not hesitate to mention that this was its 43rd increase in a row.

At the current unit price, the new distribution yields 8.6%, well above the current 2.3% average of stocks on the S&P 500 index (although it should be mentioned that it doesn't come close to Energy Transfer Partners' 14.6%).

Does it matter?
Sunoco Logistics Partners is likely feeling optimistic because it's still keeping its head above water, financially speaking. Yes, sales were down considerably (by a queasy 51% to $2.4 billion), and attributable net income sank by an even steeper 64% to $56 million, yet the partnership remained in the black.

Also, as any MLP investor could tell you, the metric that matters is distributable cash flow, the favored cash flow figure in the MLP space. And on that basis, Sunoco Logistics Partners did OK for the quarter, raising DCF by 8% on a year-over-year basis to $210 million. It was not the only member of its family to show an increase; Energy Transfer Equity managed a nearly 40% jump in the same quarter.

At the moment, Sunoco Logistics Partners has the cash to fund those ever-rising distributions; the partnership remains in the black thanks in no small part to its concentration on the transport segment (which makes it less dependent on the crude price). Its DCF coverage ratio -- DCF divided by total distributions -- was 1.2 for the first nine months of 2015, meaning it still has some cash left over for non-distribution purposes.

No enterprise involved in oil-related business is going to be unaffected by the price of crude if it stays low, or plunges even lower. So we probably can't count on Sunoco Logistics Partners -- or any entity in the Energy Transfer Equity family, for that matter -- to keep raising its distribution forever. Investors will certainly be happy to get the extra coins in their pocket with this payout, but they shouldn't expect that to continue forever.

Eric Volkman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.