Is Buckeye Partners’ Distribution Yield Sustainable?


Jun. 18 2018, Updated 7:32 a.m. ET

Buckeye Partners’ distribution yield

Buckeye Partners (BPL) was trading at a massive distribution yield of 13.5% as of June 13. The partnership’s current distribution yield is significantly higher than the past one-year and three-year average of 10.3% and 8.2%, respectively. Buckeye Partners’ current distribution yield is higher than the Alerian MLP ETF’s (AMLP) distribution yield. AMLP was trading at a yield of 8.0% as of June 13. Buckeye Partners’ peers, Magellan Midstream Partners (MMP), NuStar Energy (NS), and Plains All American Pipeline (PAA) are trading at distribution yields of 5.3%, 9.7%, and 4.7%, respectively.

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Is the high yield sustainable?

The partnership has declared a flat distribution of $1.26 per unit for the last three consecutive quarters. Buckeye Partners wasn’t able to cover its distribution in the recent quarter. Buckeye Partners’ distribution coverage stood at 0.91x during the first quarter. A distribution coverage below one indicates that the partnership isn’t able to cover its distributions from cash flows generated internally. The distribution coverage might improve in the coming quarters driven by distributable cash flow growth from the placement of few organic projects and strong volume growth from the Permian region.

Weak performance in Buckeye Partners’ merchant services, low capacity utilization at global marine terminals, and a few sector tailwinds like hurricanes could weigh on the partnership’s earnings growth in the remaining quarters in 2018.

Another decline in the distribution coverage might force the partnership to lower its distribution coverage. However, management remains optimistic about no distribution cuts in the near future. According to the recent investor presentation, “Buckeye has operated in the past with distribution coverage below 1x but the distribution policy remained unchanged during those periods based on the improvement expected over the longer-term outlook.” We’ll get a clearer picture about Buckeye Partners’ distribution outlook following its second-quarter results.

Next, we’ll discuss the recent institutional activity in Buckeye Partners.


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