NuStar Energy L.P. (NS), Enbridge Energy Partners, L.P. (EEP), Magellan Midstream Partners, L.P. (MMP): This High-Yielding MLP’s Distribution Is in Trouble

Enbridge Energy Partners, L.P. (NYSE:EEP)Master limited partnerships have been luring investors with their high yields and reliable distributions for years now. Sometimes, however, we get caught up in the yield and forget how important a reliable distribution really is. Today we’re illustrating that point with NuStar Energy L.P. (NYSE:NS). This midstream MLP focuses on petroleum products transportation and currently sports a 10% yield.

Got it covered?
To get a sense of an MLPs ability to make its distributions every quarter, we want to take a look at its distribution coverage ratio, which is simply its distributable cash flow divided by the total amount of distributions it paid out.

The numbers we’re evaluating today come from the second-quarter earnings releases for all of the partnerships listed below.

Company Distributable Cash Flow Distributions Paid Coverage Ratio
Enbridge Energy Partners, L.P. (NYSE:EEP) $146.10 $206.80 0.71
NuStar Energy $55.10 $98.10 0.56
Magellan Midstream Partners, L.P. (NYSE:MMP) $168.20 $120.71 1.39
Tesoro Logistics LP (NYSE:TLLP) $24.90 $26.10 0.95
Delek Logistics Partners LP (NYSE:DKL) $12.80 $9.70 1.32

Source: Company releases.

A distribution coverage ratio of 0.56 times payouts means that NuStar Energy L.P. (NYSE:NS) can only cover half of its distributions with the cash it generated in the second quarter. That is not what investors want to see at all. Similarly, Enbridge Energy Partners, L.P. (NYSE:EEP) is not making the grade here.

Neither one of these partnerships increased their distributions in the second quarter, and in fact, NuStar Energy L.P. (NYSE:NS) hasn’t increased its payout since the first quarter of 2011. So it sports a high yield, but it is not growing its distribution, obviously, because it cannot support what it is currently paying out.

Tesoro Logistics LP (NYSE:TLLP) is an interesting case, because it too failed to make the grade, albeit just barely, but still increased its distribution by 4% sequentially, and 24% year over year.

This raises an important point, which is that these are quarterly numbers and may manifest the cyclical nature of the partnership’s revenue or one-time tax charges that impact distributable cash flow one quarter, but not the next.

Ultimately, investors may feel more comfortable selecting an MLP like Magellan Midstream Partners, L.P. (NYSE:MMP) or Delek Logistics Partners LP (NYSE:DKL) that have no problem generating enough cash to cover distributions every quarter. Both partnerships increased distributions for the second quarter. Magellan Midstream Partners, L.P. (NYSE:MMP)’s popped 13% over 2012′s number, while Delek increased its payout 2.6% over the distribution it made in the first quarter of this year.

Bottom line
The distribution coverage ratio is not the only metric that should be taken into account when evaluating possible investment opportunities. It is important, though, and should be an integral part of any investment thesis when it comes to MLPs.

The article This High-Yielding MLP’s Distribution Is in Trouble originally appeared on Fool.com and is written by Aimee Duffy.

Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool recommends Magellan Midstream Partners.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!