Alerian MLP Index yield

MLPs lead in terms of yield compared to other investment options. The Alerian MLP Index (^AMZ) is currently trading at a yield of ~8.2% while the SPDR S&P 500 (^GSPC) is trading close to ~1.9%. The Alerian MLP ETF (AMLP) and the SPDR S&P 500 ETF (SPY) track the performance of AMZ and GSPC, respectively.

REITs and utilities, which are also considered income-generating investments, are trading at ~4.1% and ~3.9%, respectively.

MLPs with the Highest Distribution Yields in 2018

The yield spread between MLPs and other investment options reflect risks specific to MLPs such as relatively higher commodity price exposure, higher leverage, and higher counterparty exposure. However, most MLPs have worked on these issues through asset divestiture, flat distributions, and the maintenance of strong distribution coverage to avoid distribution cuts.

Out of 90 nonvariable distribution-paying midstream companies, which includes the midstream C corporations and GPs of MLPs, 41 grew their distributions in the fourth quarter. Plus, 45 kept their distribution flat, and two announced distribution for the first time.

Only two MLPs—Foresight Energy Partners (FELP) and Westmoreland Resource Partners (WMLP)—announced a distribution cut in the fourth quarter. NuStar Energy (NS) would be added to the list of MLPs that have announced a distribution cut since inception in the first quarter of 2018.

Distribution growth outlook

MLPs seemed to be on the path of recovery as far as distribution growth is concerned. Major midstream companies such as Kinder Morgan (KMI) and Williams Companies (WMB) are planning to resume distribution growth this year.

We are less likely to hear about more distribution cuts, if not distribution increases, in 2018 until there is a sharp decline in crude oil and natural gas prices. This decline seems less likely. This trend is due to improvement in distribution coverage and strong expected distributable cash flow growth in 2018.

High-yielding MLPs

NuStar Energy, Navios Maritime Midstream Partners (NAP), and Dyngagas LNG Partners (DLNG) have the highest distribution yields among the regular distribution-paying MLPs. These MLPs are currently trading at massive yields of 20.4%, 18.2%, and 16.9%, respectively. However, such high yields may not be sustainable in the long run, as they reflect increased risk and the high cost of equity capital.

NuStar Energy, Summit Midstream Partners LP, Sanchez Midstream Partners, and Summit Midstream Partners are among the midstream MLPs that have high distribution yields. For analysis of top-yielding MLPs, please read MLPs: Are Investors Missing Out on Their Attractive Yields?

In the next article, we’ll analyze MLPs’ current valuations based on yield spreads and EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiples.

Latest articles

25 Jun

Gold Breaches $1,400: What’s the Next Stop?

WRITTEN BY Anuradha Garg

Gold is now trading close to a six-year high following the Fed’s dovish pivot at its June policy meeting. After being range-bound for the last five years, gold has finally broken out and its outlook is bullish.

Shares of the J.M. Smucker Company (SJM) are up 29.8% year-to-date as of June 24 and have outperformed the broader markets. The company's acquisition of Ainsworth Pet Nutrition and its focus on high-growth categories via divestitures have supported its stock so far this year.

On June 25, General Motors (GM), America’s largest auto company, announced its plan to invest $20 million into its Arlington Assembly plant in Texas, according to Reuters. With the new investment, the company aims to upgrade its equipment before launching its full-size SUVs.

Shares of high-growth technology company ServiceNow (NOW) have gained close to 16.0% since April 2019. It's gained over 60.0% since the start of 2019. It also had an encouraging run in 2018, when it gained 32.0% in market value.

25 Jun

Ford to Announce Q2 US Sales on July 3: What to Expect

WRITTEN BY Jitendra Parashar

Earlier today, Ford (F) said that it would announce its second-quarter US sales data on July 3. In the first quarter, the company reported a 1.6% YoY decline in its US sales to 590,249 vehicle units. During the first quarter, Ford’s truck sales rose by 4.1%, and its SUV sales went up by 5.0% on a YoY basis.

On June 25, Credit Suisse initiated coverage on Chipotle Mexican Grill with an “outperform” rating and a target price of $870—a return potential of 20.1% from its stock price of $724.13 on June 24.