Master limited partnerships often form an important part of an income-seeking investor's portfolio, because of the high yields offered by them. But, with the Fed tapering asset purchases, and the yields on many MLPs now lower than they were in early 2013, investors are increasingly concerned with the effect of higher interest costs on distributable cash flow. However, higher production from increasing production from shale opportunities continues to put pressure on today's existing oil and gas infrastructure. In the medium term, this means that there are still substantial opportunities for MLPs to grow from.
Here are three fast growing MLPs, which currently offer a yield of more than 4.0%.
Access Midstream Partners (ACMP) focuses on providing natural gas and liquids gathering and processing (G&P) services to producers under long term contracts. With a strong and growing geographical position amongst unconventional plays, ACMP is well placed to take advantage of increasing production. With its long term contracts benefiting from provisions for protection against cost, capital, volume and inflation, ACMP has passed on much more risk to producers than many typical G&P MLPs.
At its current price of $54.40, ACMP offers a yield of 4.1%. Third quarter adjusted EBITDA totaled $227 million, which represents a 90% rise over the same period in the prior year. Distributable cash flow for the quarter rose 99% to $172 million, which gives the MLP a distributable cash flow coverage ratio of 1.51x. With net debt-to-adjusted EBITDA stands at a comfortable 3.2x, ACMP is in a strong position to fund further organic growth and acquisitions, in order to continue the MLP's growth in distributions.
ACMP has planned $3.5 billion of growth capital expenditure for between 2013 to 2015 to expand its asset base to take advantage from increasing production from unconventional plays, with a particular emphasis on liquids. Total distributions in 2013 rose 19.4% from the previous year, and analysts are expecting distribution growth of 18% in 2014.
Tesoro Logistics (TLLP), which had been formed by refiner Tesoro Corporation (TSO) to hold its crude oil and refined products logistics assets, yields 4.3% at its current price of $53.16. TLLP made a 2013 third quarter distribution of $0.545 per limited partnership unit. Third quarter adjusted EBITDA rose 122% to $48.3 million. Distributable cash flow for the third quarter rose 78% to $33.9 million, leaving the distributable cash flow coverage ratio at a comfortable 1.15x.
TLLP has been growing rapidly from successive dropdowns and acquisitions. Recently it acquired the Los Angeles logistics assets from Tesoro Corporation and the Northwest Products System from Chevron (CVX). Since its listing in 2011, TLLP has increased its quarterly distribution by 67%, which represents a compound annual growth rate (CAGR) of 21%. With the contribution and optimization from the assets acquired through acquisitions and dropdowns, TLLP could continue to increase its distributions by around 20% in 2014.
Enterprise Products Partners (EPD) offers a yield of 4.3% at its current price of $65.10. EPD provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals, through its operation of 50,000 miles of offshore and onshore pipelines, storage facilities, natural gas processing plants, marine services and NGL import and export terminals.
For the 2013 financial year, EPD reported record adjusted EBITDA of $4.74 billion, which is 9.4% higher than the previous year. Distributable cash flow fell from $4.13 billion to $3.75 billion, because of the effect of asset sales. Nevertheless, the distributable cash flow coverage ratio remains very strong, at 1.5x. With the partnership's pipeline extensions, increasing LPG exports and its net debt-to-adjusted EBITDA ratio at a modest 3.67x, EPD is in a strong position to raise distributions over the medium term.