ETP, MPLX, and EPD: Top MLPs Are Trading at Attractive Yields



Attractive yields

Energy Transfer Partners (ETP) is trading at a high yield of ~11.8%. MPLX (MPLX) and Enterprise Products Partners (EPD) are trading at attractive yields of 7.3% and 6.2%, respectively. Plains All American Pipeline (PAA) is trading at a yield of ~5.1%. In comparison, the Alerian MLP Index’s yield stands at ~7.9%. Currently, MLPs offer an attractive spread over the US ten-year Treasury yield, which stood at 2.84% on July 5.

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Energy Products Partners’ distributions

Enterprise Products Partners has been raising its quarterly distributions ~0.6% for the last three quarters. Enterprise Products Partners lowered its distribution growth rate in the third quarter of 2017. The company had an objective of being able to self-fund the equity portion of its growth capital.

Enterprise Products Partners has a strong track record of distribution growth, even throughout the energy price turmoil. The company’s coverage ratio was 1.5x at the end of the first quarter. Enterprise Products Partners’ strong history of distribution growth, consistent performance, financial discipline, and a healthy coverage makes its 6.2% yield attractive.

Energy Transfer Partners’ distributions

Energy Transfer Partners hasn’t increased its distributions for the last two quarters. The company expects to use the distribution savings to partially fund its growth capital. To learn more, read ETE and ETP Keep Distribution Unchanged in 1Q18: Here’s Why. Energy Transfer Partners is evaluating changes to its structure, including becoming a C corporation, to reduce its cost of equity. Energy Transfer Partners’ coverage ratio for the first quarter was 1.15x.

Energy Transfer Partners’ high leverage, uncertainties related to its structure, and project delays are likely behind its high yield.

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MPLX’s distributions

MPLX has increased distributions for 21 consecutive quarters. MPLX expects distribution growth of 10% for 2018. MPLX’s coverage ratio is 1.29x. A healthy coverage ratio and attractive distribution growth prospects make MPLX’s ~7.3% yield attractive.

Plains All American Pipeline’s distributions

Plains All American Pipeline’s distributions remained flat in the last two quarters. The MLP has cut its distributions twice—once in 2016 and 2017. While Plains All American Pipeline stock has outperformed its peers in 2018, it’s a partial recovery of the steep fall in the last few years. Plains All American Pipeline might not see a similar outperformance in the future given its relatively fair valuation and comparatively lower yield.


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