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What’s Driving Magellan Midstream’s Earnings Growth?

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MMP’s distributable cash flow

Magellan Midstream Partners’ (MMP) DCF (distributable cash flow) has grown at an average rate of 11.1% over the last five years. It expects a 2.7% increase in its DCF in 2019. Consistent DCF growth has reinforced Magellan Midstream’s distribution growth over the past years. Magellan Midstream’s DCF growth was supported by higher operating earnings in its crude oil and marine storage business in Q1 2019. Higher commodity prices also supported Magellan’s performance in 2019.

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The above graph shows Magellan Midstream’s DCF and net income for six years. DCF represents the amount of cash generated during a specific period that’s available for distributions to shareholders. Strong operational performance contributes to higher DCF. DCF is more useful than net income while analyzing MLPs, as they have high capital expenditures and distribute a significant portion of cash generated to shareholders.

Magellan Midstream raised its DCF guidance for 2019 by $40 million after a strong Q1 performance. The guidance assumes a favorable price differential between the Permian Basin and Houston in Q2. Favorable differential results in spot shipments on Magellan’s Longhorn and BridgeTex pipelines. “Our outlook for the remainder of 2019 has strengthened based on favorable market conditions for our crude oil pipeline shipments and an improved commodity pricing environment,” noted Michael Mears, the company’s chief executive officer, in its Q1 2019 earnings release.

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