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MLPs have begun to declare distributions for Q1 2010. Kinder Morgan (NYSE:KMP) announced last month that they would increase the distribution for 2010 to $4.40 from the record $4.20 paid last year. Enterprise Products (NYSE:EPD), now the largest MLP, and Duncan Energy Partners (NYSE:DEP) just announced quarter over quarter increases for Q1 (a common measure among MLPs). More quarter over quarter increases are expected.

However, the yields on the MLPs above are about 7% (comparable to the yield on the Alerian MLP index) and edging lower with higher MLP unit prices. The premium over the 10-year Treasury bond yield (3.75%) is around 350 basis points and getting thinner. The higher yield on MLPs compensates the investor for increased risk owning MLP units. When the spread narrows, it can be a signal that units are too richly valued.

For the risk takers, a few MLPs are still far below record highs reached in prior years. Constellation Energy (CEP) cut the distribution and last year eliminated the remaining 52¢ to focus on paying down debt. But two months ago borrowings were refinanced with a larger loan. CEP appears to be mending but their units are still in single digits (4). If they turn around and reinstate a portion of their old $2.25 distribution, there will be a significant upside move. 2009 results and projections for this quarter and 2010 will be announced shortly, which will tell us about their recovery. Risks takers should be interested.

Disclosure: no positions

Source: MLPs Raising Q1 Distributions