1 May

How Do Master Limited Partnerships Grow?

WRITTEN BY Victor Cheng

MLP growth

MLPs normally pay out all the available cash to the unit holders in the form of quarterly cash distribution. They hold only the maintenance capital expenditure, so there is little cash left. A GP (general partner) can help the MLP to sustain the current cash distribution yield and improve it over a period of time.

How Do Master Limited Partnerships Grow?

MLP growth strategies

MLPs grow in the following ways:

  • Asset growth: It usually takes time for MLPs to build infrastructure. Plus, it requires huge capital expenditure, which can be funded through a mix of debt and equity. Regulatory approval is also required.
  • Dropdown from the parent company or a sponsor: Dropdown of assets from the parent company is the easiest way for MLPs to grow. MLPs that have a parent or a sponsor have a clear advantage as compared to MLPs who don’t.
  • Acquisitions: MLPs can grow by acquiring other company’s assets, but it becomes challenging when there is fierce competition for acquisitions.
  • Tariff increase or volume growth: Tariff increase and volumetric growth can help increase the cash surplus of the MLP, which can be utilized to fund the acquisition of assets.

How Do Master Limited Partnerships Grow?

The above graph shows that the dropdown of assets by a GP is a significant growth avenue for MLPs.

Targa Resources (NGLS), ONEOK Partners (OKS), DCP Midstream Partners (DPM), and Spectra Energy Partners (SEP) are some of the MLPs backed by a GP. These companies have a combined weight of 10.18% in the Global X MLP & Energy Infrastructure ETF (MLPX).

In the next part of the series, we’ll discuss how MLPs fund their growth.

Latest articles

On Tuesday, Tesla (TSLA) cut the prices of its vehicles to standardize its global car line-up, according to Reuters.

Yesterday, PayPal (PYPL) announced that it would expand Xoom, which is its international money transfer service, to 32 markets in Europe.

Visa stock has risen about 37% and has outperformed the S&P 500 Index so far in 2019.

16 Jul

What to Expect from Skechers’s Q2 Results

WRITTEN BY Sharon Bailey

Skechers (SKX) is set to declare its results for the second quarter after the markets close on July 18. Here's what you should know.

On Tuesday, Canadian Pacific Railway (CP) reported strong second-quarter earnings. The company's top and bottom lines touched a record mark.

16 Jul

What to Expect from Crown Castle's Q2 Results

WRITTEN BY Sushree Mohanty

Crown Castle International (CCI) is scheduled to announce its second-quarter earnings results on Wednesday after the market closes.