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Why OKE Has the Lowest Distribution Yield among Its Peers

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Apr. 4 2018, Updated 7:31 a.m. ET

Distribution yield

MLPs’ distribution yield has risen recently due to the massive correction, and the peers we’re analyzing in this series are no different. However, three of the four peers are currently trading at a lower distribution yield than the Alerian MLP ETF (AMLP), which has a distribution yield of 9.0%.

ONEOK (OKE) has the lowest distribution yield, at 5.4%, which could be due to the partnership’s strong distribution growth guidance, supported by its impressive distribution coverage and strong earnings growth potential.

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DCP Midstream (DCP), Targa Resources Corporation (TRGP), and Western Gas Partners (WES) were trading at a distribution yield of 9.0%, 7.7%, and 8.1%, respectively. DCP’s distribution yield is the highest among the four peers, which could be due to its high commodity price exposure, high leverage, and flat distributions.

Historical distribution

Western Gas Partners and ONEOK grew their quarterly distributions by 1.7% and 3.4%, respectively, during the recent quarter. On the other hand, DCP Midstream and Targa Resources Corporation have kept their distribution flat at $0.78 and $0.91 per unit for the past several quarters.

Distribution guidance          

WES plans to grow its distribution at a fixed rate of 1.5 cents per unit for each quarter through 2019 while OKE is targeting an annual distribution growth of 9%–12% for 2018–2021. TRGP hasn’t announced any plans to resume its distribution in 2018. DCP, which has high leverage, high crude oil exposure, and significant expansion plans, is less likely to resume distribution growth in 2018.

In the next part of this series, we’ll look into the four peers’ valuation.

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