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Category Archives: MLP Market Post
MLP Ex-Dividend Dates Ex-amined
MLP price performance is seasonal, with the four seasons coinciding with each payment of quarterly distributions. The first month of each quarter historically has been a strong month (January, April, July, October), and the second month of each quarter (February, May, August, November) is usually weak. In fact the only 4 months of the year that have averaged negative price changes are those second months of each quarter. Those price declines are offset by distributions paid in the second month of each quarter.
So, there is a constant cycle that plays out in MLPs, buying leading up to distribution payments, selling afterwards to adjust for paid distributions, then slow build up again. I’ve written about at length, and you can read more about MLP seasonality here and here.
Distributions are paid to unitholders that own the MLP as of the record date, which is usually a few weeks before pay date. To be the unitholder of record, you need to buy the MLP before the ex-dividend date (ex-date for short), which is 2 trading days before the record date. So, on the ex-date, if you buy the MLP from someone, you are buying it without the dividend that will be paid a few weeks later. In theory, all else in the market being equal, the market will open trading on the ex-date at the closing price less the distribution.
Its hard to tell how efficient the market is as accounting for distribution ex-dates, because a lot of market noise can happen between close on the prior day to the opening print on the ex-date. It is possible there are trade-able patterns in MLP price as a result of the thinly traded nature of some MLPs, but any analysis of those patterns for longer than the specific ex-date increases the possibility that your pattern is the result of some other factor. For that reason, I’ve run some numbers that show how some MLPs trade from the prior close to the open and then to the close on the most recent ex-date and for the last 12 ex-dates.
The table below shows that the 5 most actively-traded MLPs opened trading on their most recent ex-dates (all over the last few weeks) opened close to where they theoretically should have, and then traded continued lower throughout the day. For the 5 most thinly traded MLPs (that have paid distributions for 3 straight years), they opened slightly better than they should have, and on average ended the day flat.
So, small caps have held up better on ex-dates and appear to be priced correctly… this quarter. That makes sense, because we have been seeing seeing a rotation out of MLPs in general in favor of other stocks, which is hurting the large cap MLPs more than small caps that carry less weight in the index that the Alerian MLP ETF tracks. Also, small cap MLPs vastly underperformed in 2011, so they are seeing more buyers this year in the search for value in an MLP sector that had gone straight up from October through year end.
For the 3 year look back below, I highlight the difference between the distribution and the opening and closing prices. The table below shows the same data as above for this quarter, and you can see that the highly-traded MLPs have sold off more than the distribution this quarter. In the right half of the table below, the chart shows little difference between actively and thinly traded MLPs.
In general, it seems like the only noticeable pattern here is that MLPs tend to trade lower from the opening print to closing print on ex-dates. That makes some sense, in that investors may have wanted to sell, but were waiting to get one final distribution before selling, so they would add to the expected technical selling, driving the price down more than is reasonable. So, if you are a day-trader, maybe you short the open. If you are a long term investor, there appear to be opportunities to buy oversold MLPs on ex-dates.
Week Thoughts: MLPs Overshadowed by Jobs, Stocks and Football
MLPs under-performed stocks this week, an ongoing trend early in 2012. MLPs were up 0.6%, compared with 2.2% for the S&P 500. This week’s under-performance was to expected, as like last week, many MLPs passed through their ex-dates this week. More on how MLPs tend to do after ex-dates below. Surprise positive economic datapoints dominated the news and led stocks higher. January payroll report was the big surprise. The report, released on Friday reported 243k new jobs and an unemployment rate down to 8.3%. Also this week, January vehicle sales were reported at 14.1 million, best since August 2009 (heart of cash for clunkers). Data seems to be pointing in the right direction, and as Josh Brown writes this weekend, attitudes will need to be adjusted.
Despite all this good news, interest rates remain very low, the 10 year treasuries remains under 2.0%, a paradox of sorts in the face of such large positive swings for stocks since September 30. Oil and gas prices were both down as well, even as the U.S. Dollar lost ground to the Euro this week. So, it seems like all cash flowed into stocks today and away from almost everything else.
As I discussed in my Winners and Losers post earlier this week, there is now and has been for at least the last 18 months, dichotomy between haves and have nots in the MLP sector continues to grow. This week, that was epitomized by the strength in earnings from Enterprise Products ($EPD) and Markwest ($MWE) compared with weakness from earnings of Inergy ($NRGY), Niska Gas Storage ($NKA) and Suburban Propane ($SPH). EPD is so well positioned in the active shale plays that it is able to pick and choose high return crude and NGL projects, as highlighted by its blowout quarterly earnings (press release). Markwest announced expansions to its processing facilities in the Marcellus and Utica (press release). Whereas NRGY, SPH and NKA are struggling just to keep their heads above water.
Also, there were 2 equity offerings this week, $150mm primary issuance from Breitburn (press release) and an untimely Chesapeake Midstream secondary sale of units owned by Global Infrastructure Partners (press release). CHKM had traded poorly for the last week prior to the deal following the announcement from CHK that it would curtail drilling in areas where CHKM has assets: Barnett and Haynesville shales.
In SEC filing news, there was a new initial S-1 for an MLP filed this week: Foresight Energy Partners. Foresight is a coal operator backed by Carlyle (filing). There have been no other S-1 filings or updates to S-1′s this year to date. Also, KMP updated its shelf registration to add an additional $600 million, for a total of $1.2 billion (filing).
Expect MLPs to outperform this week, as some of the stock market euphoria fades and MLPs catch up with ex-dates now finished. Also, expect to read a piece from me about how certain MLPs typically do after ex-dates.
In case you missed it earlier this weekend, more breakdown of MLP performance: Winners and Losers
About the Big Game
Quick note on the Super Bowl: I’m a Patriots fan, even though I wasn’t born in New England, and I only started to like the Pats right before they started winning Super Bowls. I guess that makes me a front runner. But don’t question my fandom so fast. I grew up an Oilers fan, watching Warren Moon zip the ball all over the field to Ernest Givens, Haywood Jeffires, and Drew Hill… and watching them fail repeatedly in the playoffs, never more dramatically than against the bills after leading 35-3 at halftime in 1993.
Anyway, when the Oilers left town in 1997 for Tennessee, I rooted for the Zombie Oilers in their Super Bowl run (that included revenge on the Bills with the Music City Miracle), ending 2 yards short of victory against the Rams in the 2000 Super Bowl. That almost Super Bowl Victory offered some closure, and I became something of a free agent fan. Having spent 4 years in Connecticut for high school and starting college in Boston, I decided to jump on the Patriots bandwagon in 2000. Its been a great ride, watching them rise from massive underdogs led by an unknown 6th round draft pick quarterback to perennial favorites (and hated as a result nationwide) led by a pretty-boy future Hall of Famer with a supermodel wife. So, win or lose tonight, its been lots of fun to live in Boston during this decade of dominance. Go Pats.
(Brady before he was drafted)
Also, this super bowl has a direct MLP connection. The Tisch family, owners of the Giants along with the Mara family, owns through Loews Corp, the general partner of Boardwalk Pipeline Partners ($BWP).
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only. Long EPD.
Winners and Losers: MLPs Power Through Earnings and Ex-Dates
Week Over Week
The S&P 500 extended its lead over MLPs, with a 2.2% week, compared with 0.6% for MLPs. Oil and natural gas prices were down on the week, with natural gas giving back most of its gains from last week. Variable distribution MLPs continued to outperform, up 4.3%, mostly on the back of Rentech’s 10.4% week over week change. MLPs traditionally trade poorly during these few weeks when most of them have ex-dates. Most of the ex-dates have passed at this point, so expect MLPs to recover next week (all else being equal). So, ex-dates, weak commodity prices and what appears to be rotation into risk on assets like stocks all combined to hurt MLPs on a relative basis this week.
NRGY bounced this week after its dramatic drop last Friday. Other propane MLPs (FGP and SPH in particular) were beaten down this week, but NKA had the worst week. Within the sector it appears based on the winners and losers this week that investors are rotating into MLPs with more exposure to oil than natural gas (see OILT, MCEP and EVEP).
Year to Date Performance Comparison
MLPs are still up on the year, and on a total return basis are up more than 3%, which is fine. The gap between the winners and losers is very wide for so early in the year, around 50 percentage points (from CPLP at +26% to NRGY at -24%). Variable distribution MLPs (almost all fertilizer MLPs), are doing very well, driven by Rentech Nitrogen’s 53% price increase so far this year. Also, general partner holding companies are outperforming as usual.
Propane continues to dominate the bottom 5, as SPH joins NRGY and FGP, which have occupied the bottom 2 spots for most of the year so far. CMLP continued lower this week, as the drop in natural gas price so far this year is perceived to be hurting its business substantially. MCEP jumped into the top 5 this week, benefiting (I think) from a rotation away from gas and into oil heavy names, as mentioned above. Niska Gas Storage (NKA) dropped out of the top 5 with a big drop after earnings released this week indicated continued headwinds (press release).
More to come later this weekend. Lots to discuss, including data points this week from earnings and 2 equity offerings. Also, there was a new MLP initial S-1 filed by Foresight Energy Partners, a coal company backed by Carlyle.