Magellan Midstream Partners (MMP) has raised its quarterly distributions 68 times since its IPO in 2001. In the last five years, Magellan Midstream has raised its annual distributions at an average rate of 12.2%. For 2019, the company expects distribution growth of ~5% over 2018. Notably, Magellan Midstream’s distributions continue to rise every year, but its growth rate has been declining. While MMP’s annual distributions grew 19.8% in 2014, the growth rate fell to 7.9% in 2018.
The above graph shows Magellan Midstream Partners’ per unit distribution for six years. The right axis shows its coverage ratio.
The coverage ratio indicates how many times a company’s distributable cash flow covers the distributions it pays. A coverage ratio above one indicates that the company is generating enough cash to pay to its shareholders. Magellan Midstream’s coverage ratio has consistently been above one for the last several years. The ratio stood at 1.26 in 2018. The company expects a coverage ratio of 1.2 for 2019.
Magellan Midstream’s debt-to-EBITDA ratio was 3x at the end of Q1 2019. The company intends to maintain a ratio below 4x in the long term. Magellan Midstream does not expect to access capital markets to fund its growth projects in the foreseeable future.
Overall, Magellan Midstream’s distribution growth history, a healthy coverage, and conservative leverage metrics all make its yield attractive and far less risky than most MLPs in the space.