These Five Midstream MLPs Offer Highest Yield



Can SNMP and USDP continue to raise distributions?

In this part, we’ll analyze the distribution growth and coverage of five of the ten MLPs that we are discussing in this series. These five midstream MLPs are primarily involved in the gathering, processing, transportation, and storage of oil, gas, and related products. These include Sanchez Midstream Partners (SNMP), NGL Energy Partners (NGL), USD Partners (USDP), American Midstream Partners (AMID), and Martin Midstream Partners (MMLP).

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The above graph compares the per unit distributions over the last eight quarters for the five MLPs. Sanchez Midstream Partners increased its 2Q17 distributions by 1.5% compared to the previous quarter, the highest increase out of the five MLPs. Both Sanchez Midstream Partners and USD Partners have been increasing distributions over the last two years.

Sanchez Midstream Partners had 14.6 million common units outstanding at the end of 2Q17. Its 2Q17 per unit distribution was $0.44. So, it paid nearly $6.5 million in distributions. SNMP generated $4.1 million in cash available for distribution for the quarter, resulting in a coverage below one. Sanchez Midstream targets a coverage of 1.2x.

A coverage ratio below one indicates that an MLP is distributing more cash than it is generating, which cannot continue in the long term. USD Partners, on the other hand, had a coverage of 1.3x at the end of 2Q17.

Distribution cuts

None of the midstream MLPs that we’re discussing announced a distribution cut in 2017. However, NGL Energy Partners cut its distribution by 39% in 1Q16. In the same quarter, American Midstream Partners cut its distribution by 13%. Martin Midstream Partners cut its distribution by 39% in 3Q16. All three of them have kept distributions flat after the respective cuts.

NGL Energy Partners had a coverage of 0.86x for the quarter ended June 30, 2017. This is a matter of concern for investors. The stock is down by more than 50% year-to-date.

Both Martin Midstream Partners and American Midstream Partners had a distribution coverage of 1.0x at the end of 2Q17.

In the next part, we’ll discuss Energy Transfer Partners’ (ETP) yield and the outlook for the stock.


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