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May 15, 2018

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1Q Distribution Recap

1Q Distribution Recap
Back in November, I published a report on distribution growth (or lack thereof) across the MLP landscape.  The basic takeaway was that certain industry participants were citing numbers that seemed to exaggerate distribution growth and sweep under the rug the actual change in income felt by those who owned a diversified basket of MLPs over the last few years.  In addition, I argued that distribution yield as a valuation metric should not be considered in an environment of uncertain distributions, and instead cash flow per share and EBITDA multiples were better metrics to use.
Distribution cuts made headlines again this earnings season, although they were mostly among smaller MLPs, as I’ll highlight below.  I’ve catalogued dividends of 84 MLP and U.S. midstream corporations that declared distributions this quarter.  As always, there are many different ways to evaluate distribution growth, but in the chart below I attempt to summarize distribution growth this quarter a few different ways.
The simple average of all distributions this quarter is -0.2% quarter over quarter and +2.0% year over year.  The median is +0.6% qoq and +3.0% yoy.  If you market cap weight it, however, distribution growth was  +6.0% over last quarter, with large midstream corporations like KMI (+60% dividend increase) and OKE (+3.2%), plus high growth GPs like TEGP (+32.7%) and AMGP (+44.0%), pulling up the overall average.  Just MLPs alone (removing corporations and MLPs taxed as corporations) grew distributions at a slower pace.

There were 7 distribution cuts announced this quarter.  2 of those were NuStar, 2 were shipping MLPs, then there was TCP, SXCP and CAPL.  Also, another distribution cut was announced for 2Q this week (BKEP).  The cuts were largely contained within small cap MLPs: the combined market cap of all 7 MLPs that cut this quarter is just $6.1bn (1.3% of total market cap of the sector).
10%+ Yield Club
In the universe of MLPs whose distributions I track (84 MLPs total), 31 of those are yielding above 10% based on the most recent announced distribution annualized.  5 increased distributions quarter over quarter this quarter, 7 cut distributions.
Many in the 10%+ Yield Club are small and some have non-traditional assets (shipping, coal, coking, etc.), but there are two large MLPs that loom as the last major MLPs still clinging to current distributions despite what the market is saying: ETP (12% yield) and BPL 12% yield).
ETP had a stealth distribution cut when it was acquired by SXL and renamed ETP, and it appears destined for another stealth cut into ETE, despite its 1.15x coverage and expected ramp in cash flow.  Until resolution is reached on the distributions or the yields of these two, I don’t think we can definitively ring the all clear bell on distribution cuts.