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Sunoco Logistics’ Distribution and Coverage

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Distribution growth

We learned in the previous part of this series that Sunoco Logistics Partners’ (SXL) returns were below some of its industry peers last year. But, its returns were on par with the industry benchmark ETF. This article will look at whether its unit holders will benefit from its distribution.

In the past 12 quarters since 1Q12, Sunoco Logistics’ distribution per unit increased 87% to $0.40 per unit in 4Q14. Since 4Q13, its distribution increased 21%.

For 2015, Sunoco Logistics has provided ~20% year-over-year distribution growth guidance.

The primary reasons Sunoco Logistics has been able to increase distribution are:

  • a strong pipeline of growth projects
  • fee-based income, particularly related to its terminals facilities and natural gas liquids assets
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Distribution coverage

Despite the fall in net income, Sunoco Logistics’ distributable cash flows (or DCF) increased 14% to $750 million in 2014. Distribution coverage ratio, however, decreased to 1.5x in 2014 from 1.7x in 2013. Distribution coverage ratio is the distributable cash flow divided by distributions to limited partners.

Distribution comparison

In 4Q14, in comparison to Sunoco Logistics’ (SXL) $0.40 per unit distribution, Energy Transfer Partners’ (ETP) distribution was $0.995 per unit. Boardwalk Partners (BWP) distributed $0.10 per unit, while ONEOK Partners’ (OKS) distribution was $0.79 per unit. TC Pipelines’ (TCP) per unit distribution in 4Q14 was $0.84. Sunoco Logistics is 4.55% of the Alerian MLP ETF (AMLP).

Sunoco Logistics’ stock market returns have been moderate. Does its relative valuation in the market support returns? Read the next article in the series to find out.

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