By Siraj Sarwar
Master Limited Partnerships [MLPs] are highly popular investment instruments among income oriented investors. Most investors primarily choose to invest in these stocks for their distributions. Thanks to favorable tax rules, most of these companies offer nifty distributions to their unit holders. Some MLPs also offer growth opportunities. Although it is true that many growth stocks pay low or no dividend, there are many exceptions. It is entirely realistic to expect income and growth side by side.
In this article, I choose three MLPs that have provided substantial returns to their unit holders. Thanks to strong business models, these stocks were also able to pay great dividends in the previous years. These three stocks are Sunoco Logistic Partners (NYSE:SXL), Rentech Nitrogen Partners (NYSE:RNF), and Calumet Specialty Product Partners (CLMT). All three corporations have consistently offered gigantic returns to shareholders over the past years. I believe that these companies can be a smart addition to any portfolio whether it is focused on dividends, growth or both.
Sunoco Logistics Partners owns and operates a diverse portfolio of assets. The company has a strong business model. Moreover, its business is characterized by strong business fundamentals. On the whole, the company has a strong and flexible capital structure to support its announced growth plans.
As shown in the above chart, Sunoco is offering massive returns to its shareholders. Recently, the company increased its quarterly cash distribution by 5% to $0.54/unit, yielding a 3.61% return. At the end of 2012, the company returned an attractive $2.18/unit to shareholders in distributions. Moreover, the company has been offering substantial returns through price appreciation. Since June 2012, Sunoco's price has risen by more than 50%.
Furthermore, cash flows are strong for the MLP at present. Cash flows from operations have been growing at a continuously impressive rate over the past three years. In the trailing twelve months, operating cash flow now stands at $626 million. This represents an increase of $194 million over the previous year and a 100% increase over the previous two years.
Existing free cash flows present an adequate cover for the company's cash distributions. The company's free cash flows have also demonstrated a similar trend over the years. In the ttm, Sunoco generated $300 million in free cash flow. The company was able to increase its cash flows by 300% over the previous two years. At the same time, the company is also spending heavily to invest in growth opportunities seeking long-term returns.
Sunoco has been working on a dynamic business plan. The plan includes both acquiring new assets for further expansion of cash flows and escalating the efficient utilization of existing assets. So far, this plan worked pretty well. Shareholders enjoyed substantial returns in terms of both dividends and also price appreciation. While the stock is a bit pricey, Sunoco is clearly a buy and hold stock for long term returns.
Rentech Nitrogen Partners LP engages in the production of natural gas-based nitrogen fertilizer and industrial products for agricultural uses. The company was established in 1965 and is headquartered in Los Angeles, California.
As the above chart demonstrates, Rentech has been providing incredible returns to its shareholders. At the end of 2012, the partnership has returned $3.30/unit to shareholders in distributions. Recently, the company announced a quarterly cash distribution of $0.75 per unit, yielding a return of 8.34%. Moreover, Rentech increased its value by nearly 73.75% alone the last year.
Over the previous three years, Rentech has consistently demonstrated impressive revenue growth. Since 2010, Rentech increased its revenue to $180 million from $131 million. The MLP has a good gross and operating margin of 42.7% and 38.4% respectively. The partnership quickly converts sales into profits, and its profit margin stands at 13%.
Moreover, the partnership has strong and stable cash flows at present. Its operating cash flows stand at $84 million. Cash flows from operations have demonstrated impressive growth over the previous three years. The MLP managed to increase its operating cash flows by $64 million over the previous two years.
Moreover, free cash flows present an adequate cover for the company's cash distributions. The company's free cash flows have also demonstrated a similar trend over the years. In the TTM, Rentech generated $66 million in free cash flows. The company was able to increase its cash flows by $56 million over the previous two years. At the same time, the company is also spending heavily areas providing growth opportunities for positive long-term returns.
The company benefited from the existing low price environment. Additionally, the current natural gas market permits the partnership to reduce costs. I think the partnership is heading in the right direction and creating significant value for investors.
Calumet Specialty Products Partners is a leading independent producer of high-quality, specialty hydrocarbon products in America. The partnership processes crude oil and other feed stocks into lubricating oils, waxes and asphalt used in consumer, solvents and industrial products. Calumet also generates fuel products such as gasoline and diesel.
Recently, Calumet announced a record net income of $205.7 million in 2012 compared to $43 million at the end of 2011. The partnership greatly benefited from their legacy business and acquisitions. In addition, Calumet continues to benefit from the Canadian heavy crude oil differentials at its Montana and Superior refineries.
As illustrated in the above chart, this MLP has returned a significant amount to its shareholders. At the end of 2012, the company returned $2.60/unit to its shareholders in distributions. Moreover, the company has been returning massively based on the company's share price. In the last 12 months alone, Calumet increased its value by nearly 33.21%.
The corporation has shown excellent revenue growth over the previous three years. At the end of 2009, Calumet generated revenues of $1.84 billion which increased to $4.6 billion by the end of 2012. Additionally, the partnership managed to grow its revenue by 13.65% over the past five years.
Furthermore, operating cash flows are increasing at a strong rate for the partnership. At the end of 2012, the partnership's operating cash flow stood at $354 million. The partnership has increased its distributable cash flow by $21.5 million over the previous year. This indicates a massive increase in distributions that can be anticipated.
Calumet is a real example of a safe business model. The company has provided hefty returns to its shareholders over the years. Calumet's strong cash flows suggest that it has a significant potential to raise its distributions. While the stock is also a bit on the pricey side of the market, it can be a beneficial inclusion for the long-term portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Siraj Sarwar, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.