Distribution Yield Might Fall for MarkWest Unitholders



Distribution guidance

In the last part of this series, we saw the integration opportunities for the combined MPLX LP (MPLX) and its sponsor Marathon Petroleum (MPC). In this part, we’ll look at the distribution guidance for the combined entity.

According to a recent press release, “MPLX affirms its anticipated distribution growth of 29 percent this year and expects a ~25 percent compound annual distribution growth rate for the combined entity through 2017, with the capacity to support a peer leading distribution growth profile for an extended period of time thereafter.”

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According to Gary Heminger, CEO of Marathon Petroleum, “The strategic combination with MarkWest would result in a large cap, diversified MLP with an exceptional growth profile. This transaction creates a tremendous platform for the combined partnership to continue to grow distributable cash flow and creates significant long-term value for the unitholders.”

MarkWest Energy and MPLX’s 1Q15 annualized distributions per unit were $3.64 and $1.64, respectively. In order to compensate MarkWest Energy unitholders for the lower distribution, MPLX has agreed to pay a one-time cash payment of $3.37 per MarkWest Energy unit.

Distribution yield

Currently, MarkWest Energy and MPLX trade at distribution yields of 5.33% and 2.95%, respectively—compared to pre-merger announcement yields of 6.10% and 2.38%. The falling trend in MarkWest Energy’s distribution yield reflects:

  • strong distribution growth targets for the combined MPLX of ~29% in 2015 and ~25% in 2016–2017 versus MarkWest Energy’s distribution growth guidance of 4.50% for fiscal 2015
  • lower commodity price exposure in the combined MPLX compared to MarkWest Energy’s existing commodity price exposure
  • integration opportunities—as we discussed in the last part of this series

Key ETFs and stocks

MPLX’s peer, Sunoco Logistics (SXL) has a distribution growth guidance of ~21.50% for fiscal 2015—compared to fiscal 2014. Currently, Sunoco Logistics trades at a distribution yield of 4.64%. For a comparative distribution yield analysis of four peers that provide transportation and teminaling services—including Buckeye Partners (BPL), NuStar Energy (NS), Tesoro Logistics (TLLP), and Sunoco Logistics—read Analyzing 4 Top US Transportation and Terminaling MLPs.

Together, Sunoco Logistics, Buckeye Partners, NuStar Energy, Tesoro Logistics, and MarkWest Energy account for 23.55% of the Alerian MLP ETF (AMLP).


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