MLPs have begun to declare distributions for Q1 2010. Kinder Morgan (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 (EPD), now the largest MLP, and Duncan Energy Partners (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