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Summary

  • One of the key thresholds that must be passed before an investor has the confidence to pull the trigger and purchase an equity is gaining an understanding of their valuations.
  • In this article, I reveal some of the stats that I track that assist me in doing that task.
  • For the energy master limited partnerships, one of the keys to finding the better stocks is finding high distribution growth stocks.
  • The key metric that correlates to distribution growth is the distribution to distributable cash flow ratio.

With the always tardy announcement of Buckeye Partners, L.P.'s (NYSE:BPL) Q2 '14 distribution last Friday, it's time to take a look at the record for historical distribution growth, year-to-date returns and a few other metrics that will assist in making sense of what has transpired in 2014 for the midstream master limited partnerships like Enterprise Products Partners L.P. (NYSE:EPD), Kinder Morgan Energy Partners, L.P. (NYSE:KMP) and Magellan Midstream Partners LP (NYSE:MMP).

MLP Midstream 05-02-14

The consensus DCFs were last updated on 04-04-14. The CAGR (Compound Annual Growth Rate) projections for the distribution were updated 4-09-14. Yields are based on the Q2-14 distribution. Under the "year-to-date" header, the change in the distribution is the change since Q2-13. The change in the target, EPS, DCF and CAGR is the percentage change in the consensus 2014 projection that has happened since the beginning of the year. SEP's distribution increase was announced after this spreadsheet was done. LTM (last twelve month) distribution growth should be 10.97%.


Company CurrentDistrib/Q2 Dist.Dist./dcfDist./dcfYear-to-Date Percent Change
  PriceQuarterYield20142015PricePr+Dist.EPSTargetDCFDist.*cagr

Access Midstream Partners, L.P.(NYSE:ACMP)60.240.57503.8267.8565.166.477.486.2110.255.2823.130.00
American Midstream Partners, LP(NYSE:AMID)27.120.46256.8293.9179.060.151.860.007.32-4.836.9433.33
Atlas Pipeline Partners, L.P.(NYSE:APL)33.180.62007.4786.7184.64-5.34-3.57-83.81-14.46-3.055.080.00
Blueknight Energy Partners, L.P.(NASDAQ:BKEP)9.010.13005.7750.9852.005.887.40-35.850.00-0.9710.640.00
Buckeye Partners, L.P. 77.151.10005.7095.6587.488.6510.201.086.03-2.134.7620.00
Boardwalk Pipeline Partners, LP(NYSE:BWP)15.860.10002.5222.4724.10-37.85-37.46-31.40-40.44-10.10-81.220.00
Crestwood Midstream Partners LP(NYSE:CMLP)22.670.41007.2390.1180.39-8.92-7.2712.50-3.94-1.623.8016.67
DCP Midstream Partners LP(NYSE:DPM)54.110.74505.5189.7680.117.478.95-4.582.190.916.430.00
El Paso Pipeline Partners, L.P.(NYSE:EPB)33.380.65007.79100.7894.89-7.28-5.47-16.99-13.010.004.848.70
Enbridge Energy Partners, L.P.(NYSE:EEP)30.870.54357.04106.05100.183.355.17-16.07-3.35-3.300.000.00
Enterprise Products Partners L.P. 73.430.71003.8768.6064.6910.7511.833.026.39-0.245.970.00
Energy Transfer Partners, L.P.(NYSE:ETP)56.000.93506.6880.7884.81-2.18-0.556.171.45-1.284.628.11
EQT Midstream Partners, LP(NYSE:EQM)75.500.49002.6061.6453.2628.4229.261.9134.152.5832.431.05
Exterran Partners, L.P.(NASDAQ:EXLP)29.390.53757.3282.3890.72-2.78-1.00-17.467.000.003.860.00
Genesis Energy LP(NYSE:GEL)56.740.55003.8884.2965.677.938.98-10.162.35-11.2210.550.00
Holly Energy Partners L.P.(NYSE:HEP)34.180.50755.9491.4482.865.727.29-1.69-0.591.376.280.00
Kinder Morgan Energy Partners, L.P. 75.321.38007.3395.6794.20-6.62-4.912.57-4.950.706.15-31.91
Magellan Midstream Partners LP 75.370.61253.2578.7869.2119.1220.093.9621.811.3020.692.27
MarkWest Energy Partners, L.P.(NYSE:MWE)62.870.87005.5482.0874.68-4.93-3.61-24.69-7.09-2.304.82-19.54
Targa Resources Partners LP(NYSE:NGLS)60.000.76255.0882.4375.1214.7216.1817.229.375.419.320.00
NuStar Energy L.P.(NYSE:NS)57.911.09507.56113.7798.4313.5715.723.7620.881.050.000.00
ONEOK Partners, L.P.(NYSE:OKS)56.620.74505.2692.5579.897.548.962.971.79-3.594.200.00
Oiltanking Partners, L.P.(NYSE:OILT)85.140.49502.3357.2354.1037.1737.97-4.6120.0022.7022.2216.88
Plains All American Pipeline, L.P.(NYSE:PAA)57.200.63004.4184.2879.2510.4911.71-8.241.04-4.479.570.00
Regency Energy Partners LP(NYSE:RGP)27.570.48006.9695.5286.494.996.821.921.06-2.904.3525.00
Spectra Energy Partners, LP(NYSE:SEP)56.270.54633.8883.4083.4024.0825.280.001.701.558.980.00
Sunoco Logistics Partners L.P.(NYSE:SXL)92.550.69503.0061.2357.8022.6223.54-4.3313.71-1.5221.401.12
TC PipeLines, LP(NYSE:TCP)51.270.81006.3286.1784.165.867.540.862.481.623.850.00
Tesoro Logistics LP(NYSE:TLLP)67.080.59003.5280.0073.0728.1629.29-13.084.39-3.9120.410.00
Transmontaigne Partners L.P.(NYSE:TLP)45.420.66005.8170.5976.306.878.420.901.056.863.130.00
Western Gas Partners LP(NYSE:WES)68.170.62503.6780.9171.0210.5011.52-3.033.631.3115.740.00
Williams Partners L.P.(NYSE:WPZ)52.130.90456.9498.3294.222.504.28-1.40-1.933.086.730.00
EnLink Midstream Partners, LP(XTEX)29.380.36004.9092.3177.016.457.75-23.9119.08-0.649.090.00

Pipeline Average  5.3282.0876.316.778.17-7.163.313.456.63 
Shipping
Navios Maritime Partners L.P.(NYSE:NMM)18.920.44259.36104.1298.33-1.051.27-2.747.55-2.860.000.00
Martin Midstream Partners LP(NASDAQ:MMLP)42.350.78757.4491.3073.26-1.050.79-3.75-0.90-0.861.610.00
Teekay LNG Partners LP.(NYSE:TGP)42.880.69186.4593.4980.440.402.026.07-1.070.342.490.00

Shipping Average  7.7596.30 -0.571.36-0.141.86  

MidStream Average 5.5383.2676.956.167.60-6.573.19  

The (price change only) Alerian MLP index [the ^AMZ - which includes other MLP sectors] is 4.81% year-to-date.
The Alerian MLP index ETN AMJ is 5.59%, and with dividends is 6.81%.
The S&P500 index ETF SPY is 1.82%, and with dividends is 2.27%.
The Russell 2000 index ETF IWM is -2.89%, and with dividends is -2.62%.
With the 10-year Treasury @ 2.58% and the sector average yield [on Q1 distrib's] at 5.53% - the spread is 295 bps.

The top four midstream performers of 2014 have been EQT Midstream Partners, LP, Oiltanking Partners, L.P., Spectra Energy Partners, LP and Tesoro Logistics LP. Three of those four have had well over double-digit distribution growth trends. It is a logical correlation that those MLPs that outperform on distribution growth should outperform in unit price appreciation. Let's look at the sector data parsed by distribution growth:

The following companies had distribution increases of more than 8% when comparing Q2-14 to Q2-13: ACMP, BKEP, GEL, MMP, NGLS, OILT, PAA, SEP, SXL, TLLP, WES and XTEX. Their mean price gain for the year is 16.13%. Their mean total return for the year is 17.27% - and 11 of the 12 beat the sector median yearly price gain of 6.16%.

The following companies had distribution increases between 5% and 8% when comparing Q2-14 to Q2-13: AMID, APL, DPM, EPD, HEP, KMP and WPZ. Their mean price gain for the year is 2.09%. Their mean total return for the year is 3.67% - and 2 of the 7 beat the sector median yearly price gain.

The following companies had distribution increases between 2% and 5% when comparing Q2-14 to Q2-13: BPL, EPB, ETP, EXLP, MWE, OKS, RGP, TCP and TLP. Their mean price gain for the year is 1.86%. Their mean total return for the year is 3.48% - and 3 of the 9 beat the sector median yearly price gain.

The following companies did not have distribution increases - or had increases of less than 2%: BWP, EEP and NS. Their mean price gain for the year is -6.98% (or 8.46% w/o BWP). Their mean total return for the year is -5.52% (or 10.44% w/o BWP) - and 1 of the 3 beat the sector median yearly price gain. (NS provided an outlook in its Q4-13 earnings call that caused the market to have more confidence in its turnaround. There is ample indication of that in the year-to-date change in NS' price target.)

If distribution growth is the key to superior returns, then what has been the distribution growth history? Here is that data:

Large-Capped MLPs based on Q2 Distributions


 Distribution/Unit/QuarterPercentage Distribution GrowthAv Growth
Co.2007200820092010201120122013201408-0909-1010-1111-1212-1313-1412-1408-14

BPL0.80000.85000.90000.95001.00001.03751.05001.10005.885.565.263.751.204.762.984.40
BWP0.43000.46500.48500.50500.52250.53250.53250.10004.304.123.471.910.00-81.22-40.61-11.24
EPB0.00000.28750.32500.38000.46000.51000.62000.650013.0416.9221.0510.8721.574.8413.2014.72
EEP0.46200.47500.49500.50120.51370.53250.54350.54354.211.252.493.662.070.001.032.28
EPD0.47500.50750.53750.56750.59750.62750.67000.71005.915.585.295.026.775.976.375.76
ETP0.78750.86880.89380.89380.89380.89380.89380.93502.880.000.000.000.004.622.311.25
KMP0.83000.96001.05001.07001.14001.20001.30001.38009.381.906.545.268.336.157.246.26
MMP0.30620.33610.35500.36000.38500.42000.50750.61255.611.416.949.0920.8320.6920.7610.76
NS0.91500.98501.05751.06501.07501.09501.09501.09507.360.710.941.860.000.000.001.81
OKS0.49500.52000.54000.55500.57500.63500.71500.74503.852.783.6010.4312.604.208.406.24
PAA0.40630.43300.45250.46750.48500.52250.57500.63004.503.313.747.7310.059.579.816.48
WPZ0.50000.60000.63500.65250.71750.77750.84750.90455.832.769.968.369.006.737.867.11

Average       7.283.865.775.667.70-1.14

Small-Capped MLPs based on Q2 Distributions


 Distribution/Unit/QuarterPercentage Distribution GrowthAv Growth
Co.2007200820092010201120122013201408-0909-1010-1111-1212-1313-1412-1408-14

BKEP0.00000.00000.00000.00000.00000.11000.11750.1300nananana6.8210.648.73na
GEL0.22000.30000.33750.36750.40750.45000.49750.550012.508.8910.8810.4310.5610.5510.5510.64
HEP0.34500.36750.38750.40750.42750.44750.47750.50755.445.164.914.686.706.286.495.53
OILT0.00000.00000.00000.00000.00000.35000.40500.4950nananana15.7122.2218.97na
SEP0.00000.33000.37000.42000.46000.48000.50130.546312.1213.519.524.354.448.986.718.82
SXL0.27500.29830.33830.37160.39830.42750.57250.695013.419.847.197.3333.9221.4027.6615.51
TCP0.65000.70000.70500.73000.75000.77000.78000.81000.713.552.742.671.303.852.572.47
TLLP0.00000.00000.00000.00000.00000.37750.49000.5900nananana29.8020.4125.10na
TLP0.47000.57000.59000.60000.61000.63000.64000.66003.511.691.673.281.593.132.362.48

Average       7.957.116.155.4613.8511.94

G&P MLPs based on Q2 Distributions


 Distribution/Unit/QuarterPercentage Distribution GrowthAv Growth
Co.2007200820092010201120122013201408-0909-1010-1111-1212-1313-1412-1408-14

ACMP0.00000.00000.00000.00000.35000.40500.46700.5750nanana15.7115.3123.1319.22na
AMID0.00000.00000.00000.00000.00000.43250.43250.4625nananana0.006.943.47na
APL0.86000.94000.15000.00000.40000.56000.59000.6200-84.04-100.00na40.005.365.085.22na
CMLP0.00000.00000.00000.00000.00000.00000.39500.4100nanananana3.80nana
DPM0.46500.59000.60000.60000.62500.66000.70000.74501.690.004.175.606.066.436.243.99
EQM0.00000.00000.00000.00000.00000.00000.37000.4900nanananana32.43nana
EXLP0.35000.42500.46250.46250.47750.49750.51750.53758.820.003.244.194.023.863.944.02
MWE0.51000.60000.64000.64000.67000.79000.83000.87006.670.004.6917.915.064.824.946.52
NGLS0.33700.41750.51750.51750.55750.62250.69750.762523.950.007.7311.6612.059.3210.6810.78
RGP0.38000.42000.44500.44500.44500.46000.46000.48005.950.000.003.370.004.352.172.28
WES0.00000.30000.30000.34000.39000.46000.54000.62500.0013.3314.7117.9517.3915.7416.5713.19
XTEX0.56000.62000.00000.00000.29000.33000.33000.3600-100.00nana13.790.009.094.55na

Average       -17.12-9.633.8413.026.5210.42

Marine Transport MLPs based on Q2 Distributions


 Distribution/Unit/QuarterPercentage Distribution GrowthAv Growth
Co.2007200820092010201120122013201408-0909-1010-1111-1212-1313-1412-1408-14

NMM0.00000.35000.40000.41500.43000.44000.44250.442514.293.753.612.330.570.000.284.09
MMLP0.64000.72000.75000.75000.76250.76250.77500.78754.170.001.670.001.641.611.631.51
TGP0.46250.53000.57000.60000.63000.67500.67500.69187.555.265.007.140.002.491.244.57

Average       13.003.003.433.160.742.05

If distribution growth is the key to superior returns, then how can we predict distribution growth before it happens?

Distribution Increases and the Distribution/DCF (Distributable Cash Flow) Ratio for the last twelve months. I weeded out BWP from these stats.

The following companies had distribution/DCF ratios under 77% before the Q1-14 distribution announcements: ACMP (23.13%), BKEP (10.64%), EPD (5.97%), EQM (32.43%), MMP (20.69%), OILT (22.22%), SXL (21.40%), TLLP (20.41%), TLP (3.13%) and WES (15.74%). Their mean distribution gain between Q2-13 and Q2-14 was 17.58%.

The following companies had distribution/DCF ratios more than 77%, but under 90% before the Q1-14 distribution announcements: APL (5.08%), CMLP (3.80%), DPM (6.43%), ETP (4.62%), EXLP (3.86%), GEL (10.55%), HEP (6.28%), MWE (4.82%), NGLS (9.32%), PAA (9.57%), SEP (8.98%), TCP (3.85%) and XTEX (9.09%). Their mean distribution gain since Q2-13 was 6.63%.

The following had distribution/DCF ratios more than 90%: AMID (6.94%), BPL (4.76%), EPB (4.84%), EEP (0.00%), KMP (6.15%), NS (0.00%), OKS (4.20%), RGP (4.35%) and WPZ (6.73%). Their mean distribution gain since Q2-13 was 4.22%.

Of the ten stocks with the lowest ratios - the smallest distribution gain was from EPD and TLP. These two have multi-year histories of having strong distribution coverage, while having low or average distribution growth. Relatively low distribution growth from these two was expected. Weeding out those two, the lowest level of distribution growth was 10.64%. That would have put that stock at the top of the next lower tier. There were three instances of third-tier distribution coverage MLPs having what you might call "second-tier" distribution growth. That is to be expected. Two of those instances were from large cap, investment-grade MLPs with histories of stronger DCF projection accuracy. Investment-grade companies can afford to have higher payout ratios due to their increased earning visibility. None of the MLPs that lacked distribution coverage had a distribution increase.

One of the other metrics used to project distribution growth is the recent trend in distribution growth. Let's look at the correlation data on that metric.

Distribution Inertia Correlations:

The following MLPs had distribution growth between Q2-12 and Q2-13 of more than 7%: ACMP, EPB, GEL, KMP, MMP, NGLS, OKS, OILT, PAA, SXL, WES and WPZ. Their mean distribution gain between Q2-13 and Q2-14 was 13.46%.

The following MLPs had distribution growth between Q2-12 and Q2-13 of between 4% and 7%: APL, BKEP, DPM, EPD, EXLP, HEP, MWE and SEP. Their mean distribution gain between Q2-13 and Q2-14 was 6.51%.

The following MLPs had distribution growth between Q2-12 and Q2-13 of less than 4%: AMID (6.94%), BPL (4.76%), BWP, EEP (0%), ETP (4.62%), NS (0%), RGP (4.35%), TCP (3.85%), TLP (3.13%) and XTEX (9.09%). Their mean distribution gain between Q2-13 and Q2-14 was -4.45% (and 3.67% w/o BWP).

When it comes to the data groupings, distribution inertia was significantly predictive of forward distribution growth. But when you look at the output one stock at a time - you can see many failures. EPB and KMP are no longer top-tier distribution growers. Bottom-tier XTEX improved to the top tier. Of the ten that had below 4% growth between Q2-13 and Q2-13, five had more than 4% growth between Q2-13 and Q2-14 and were promoted out of the bottom tier. Of the 12 that had over 7% growth between Q2-12 and Q2-13, four (EPB, KMP, OKS and WPZ) had less than 7% growth between Q2-13 and Q2-14 and were demoted out of the top tier. There are lots of imperfections in the projections one would make using the distribution inertia metric. At the same time, there are lots of people who use that tool.

The five-year forward compound annual distribution growth rate projections (or CAGRs) are not intended for short-term use. My CAGRs are intentionally conservative - and often significantly understate short-term distribution growth. But even with that caveat - all six of the MLPs to which I have assessed 9% CAGRs had distribution growth over 15%.

One familiar warning I have provided is that one should not use the CAGR projections one can find for MLPs at Yahoo Finance. The projections from Yahoo are pretty reasonable projections in other sectors that I follow. These are probably EPS projections - and that throws their utility off when applying their use as MLP distribution projections. But whatever the cause - don't use them. If you have used the Yahoo projections, you would be expecting 33.8% growth from APL; 11.3% growth from CMLP; 19.0% growth from DPM; 12.6% growth from EEP; and 19.4% growth from WPZ. That is the data I gathered at the first of the year.

In an effort to be fair and balanced - let's look at two potential warning signs in the data already shown.

(1) The price of growth is rising

The relationship between CAGR projections and yields on 5-02-14:

The following had CAGR projections over 8.5%: ACMP, BKEP, EQM, GEL, MMP, OILT, SXL, TLLP and WES. Their current average yield is 3.54%.

The following had CAGR projections under 8.5%, but over 5.9%: AMID, APL, DPM, EPD, HEP, MWE, NGLS, OKS, PAA and SEP. Their current average yield is 5.38%.

The following had CAGR projections under 6.0%, but over 3.5%: BPL, CMLP, ETP, RGP and WPZ. Their current average yield is 6.70%.

The following had CAGR projections under 3.5%: BWP, EPB, EEP, EXLP, KMP, NS, TCP and TLP. While the average yield is 6.46% - dropping BWP produces an average of 7.02%.

The relationship between CAGR projections and yields on 12-31-13:

The following had CAGR projections over 8.5%: ACMP, APL, BKEP, EQM, GEL, MMP, MWE, SXL, TLLP and WES. Their current average yield is 4.19%.

The following had CAGR projections under 8.5%, but over 5.9%: DPM, EPD, HEP, NGLS, OKS, OILT, PAA and SEP. Their current average yield is 4.81%.

The following had CAGR projections under 6.0%, but over 3.5%: AMID, BPL, CMLP, ETP, KMP, RGP and WPZ. Their current average yield is 6.49%.

The following had CAGR projections under 3.5%: BWP, EPB, EEP, EXLP, NS, TCP and TLP. Their current average yield is 7.28%.

The yield spread between the high and low groups has gone from (7.28 - 4.19) 309 basis points to an adjusted (7.02 - 3.54) 348 basis points. The relative price of growth is going up. At the same time, growth still sells at a discount.

The CAGR difference between the two groups is at least 500 basis points. If the "two birds in a bush" quality of distribution growth did not cause that attribute to sell at a discount compared to the "bird in the hand" quality of yield, then the basis point spread between the two groups would be at least 500. This is a metric that indicates that the sector is "de-risking".

(2) Large caps have lost their valuation edge

On 12-31-10, the large cap MLPs sold at an average 2011 price/DCF multiple of 14.55, compared to the G&P multiple of 12.41 - a spread of -303 bps.

On 12-31-11, the large cap MLPs sold at an average 2012 price/DCF multiple of 14.49, compared to the G&P multiple of 12.37 - a spread of -212 bps.

On 12-31-12, the large cap MLPs sold at an average 2013 price/DCF multiple of 13.20, compared to the G&P multiple of 10.93 - a spread of -227 bps.

On 12-31-13, the large cap MLPs sold at an average 2014 price/DCF multiple of 14.90 (or 15.09 w/o BWP), compared to the G&P multiple of 16.59 - a spread of 169 bps (or 150 w/o BWP).

On 05-02-14, the large cap MLPs sold at an average 2014 price/DCF multiple of 15.56 (or 16.16 w/o BWP), compared to the G&P multiple of 17.50 - a spread of 194 bps (or 134 w/o BWP).

With the large cap, investment grade MLPs no longer having a valuation advantage, this is a second sign that the sector is fully valued or overvalued - and that "de-risking" is happening.

One more potential warning comes from the long-term data

The story told in the data above is not the whole story. The whole story is more complicated. But even from this limited amount of data (and I know that some of you are wincing at the thought that the above was a "limited" amount of data), we know that the key to unit price appreciation is not distribution growth alone. The data:

Price Changes and Total Returns Since the Beginning of 2012, 2011 and 2010

  05-02-1312-31-11Change12-31-10Change12-31-09ChangeDist. GrowthDCF Growth
CompanyPricePricePricePr+Dist.PricePricePr+Dist.PricePricePr+Dist.since Q4-09since 2010
Large-Capped MLPs
BPLBuckeye Partners, L.P.77.1563.9820.5835.3666.8315.4435.5954.4541.6973.4417.5711.38
BWPBoardwalk Pipeline Partners, LP15.8627.67-42.68-26.9331.13-49.05-28.3230.03-47.19-18.94-79.80-17.59
EPBEl Paso Pipeline Partners, L.P.33.3834.62-3.5811.7333.45-0.2121.2325.9628.5862.1785.7113.66
EEPEnbridge Energy Partners, L.P.30.8733.19-6.997.6831.19-1.0321.2926.8415.0148.499.80-9.69
EPDEnterprise Products Partners L.P.73.4346.3858.3271.1141.6176.4796.5131.41133.78167.6026.7030.60
ETPEnergy Transfer Partners, L.P.56.0045.8522.1439.7651.828.0730.5644.9724.5358.402.9436.18
KMPKinder Morgan Energy Partners, L.P.75.3284.95-11.342.1770.267.2030.0560.9823.5256.9229.5231.14
MMPMagellan Midstream Partners LP75.3734.44118.84131.9628.25166.80188.2921.66247.97282.7264.7969.95
NSNuStar Energy L.P.57.9156.662.2119.6069.48-16.653.7856.093.2436.172.82-13.48
OKSONEOK Partners, L.P.56.6257.74-1.948.7839.7542.4463.8631.1581.77116.2633.9438.79
PAAPlains All American Pipeline, L.P.57.2036.7255.7769.5331.3982.22104.5326.43116.42150.0233.7045.85
WPZWilliams Partners L.P.52.1359.99-13.10-0.6946.6511.7533.9330.6769.97112.3440.55-1.60

 16.5230.84 28.6250.11 61.6195.47 

  05-02-1312-31-11Change12-31-10Change12-31-09ChangeDist. GrowthDCF Growth
CompanyPricePricePricePr+Dist.PricePricePr+Dist.PricePricePr+Dist.since Q4-09since 2010
Small-Capped MLPs
GELGenesis Energy LP56.7428.04102.35117.9526.40114.92137.7418.90200.21239.9651.7720.83
HEPHolly Energy Partners L.P.34.1826.8927.1142.8525.4534.3057.6919.9271.59109.7025.7926.86
SEPSpectra Energy Partners, LP56.2731.9676.0690.1432.8571.2990.6029.5790.29117.4936.5731.00
SXLSunoco Logistics Partners L.P.92.5539.40134.90147.2027.86232.20255.3722.30315.02350.7286.62134.02
TCPTC PipeLines, LP51.2747.438.1023.0452.00-1.4018.0836.8439.1774.6510.96-3.59
TLPTransmontaigne Partners L.P.45.4233.6035.1852.3536.4124.7547.3527.5364.98103.5610.178.72

 63.9578.92 79.34101.14 130.21166.01 

  05-02-1312-31-11Change12-31-10Change12-31-09ChangeDist. GrowthDCF Growth
CompanyPricePricePricePr+Dist.PricePricePr+Dist.PricePricePr+Dist.since Q4-09since 2010
G&P MLPs
ACMPAccess Midstream Partners, L.P.60.2429.00107.72122.0128.77109.38128.7328.77109.38129.90 120.13
APLAtlas Pipeline Partners, L.P.33.1837.15-10.693.5024.6734.5063.079.81238.23313.66 71.26
CMLPCrestwood Midstream Partners LP22.6731.74-28.58-19.9327.19-16.62-6.5320.978.1121.20 -7.61
DPMDCP Midstream Partners LP54.1147.4713.9927.0737.4044.6868.0229.5782.99120.7022.0833.87
EXLPExterran Partners, L.P.29.3920.1545.8668.7526.869.4233.7422.2232.2770.0215.1415.49
MWEMarkWest Energy Partners, L.P.62.8755.0614.1827.5543.3145.1668.5129.27114.79158.0834.3821.84
NGLSTarga Resources Partners LP60.0037.2860.9477.3133.9676.68101.3024.31146.81189.8444.4439.62
RGPRegency Energy Partners LP27.5724.8610.9027.6727.261.1423.0220.9531.6068.576.7410.44
WESWestern Gas Partners LP68.1741.2765.1876.5230.30124.98145.6923.80186.43218.6387.5039.82
XTEXEnLink Midstream Partners, LP29.3816.2281.1399.5714.40104.03132.928.60241.63292.91 -4.88

 36.0751.00 53.3375.85 119.22158.35 

  05-02-1312-31-11Change12-31-10Change12-31-09ChangeDist. GrowthDCF Growth
CompanyPricePricePricePr+Dist.PricePricePr+Dist.PricePricePr+Dist.since Q4-09since 2010
Marine Transport MLPs
NMMNavios Maritime Partners L.P.18.9214.7428.3655.3419.45-2.7226.6714.7927.9277.849.26-10.53
MMLPMartin Midstream Partners LP42.3534.4422.9743.1539.377.5732.9631.4834.5375.824.6712.38
TGPTeekay LNG Partners LP.42.8833.1729.2747.5037.9912.8735.4226.4761.99103.3121.3717.93

 26.8748.66 5.9131.69 41.4885.66 

I want to note for purposes of comparison that the S&P 500 EFT SPY is up (188.06/111.44) 68.75% over this time period - and its price appreciation plus unreinvested total return is 77.26%. Roughly speaking - any MLP with unit price appreciation of 138% has doubled the price appreciation of the S&P - and the list of MLPs that has accomplished this includes APL, GEL, MMP, NGLS, SXL, WES and XTEX. EPD's 133.78% unit price appreciation merits an honorable mention for nearly doubling the S&P. After looking at the above data for a few minutes, the mind starts to have a different orientation. I start to thinking that any stock that has not doubled over this time period is slacking. In reality, it is only those with price appreciation under 68% that merit the slacker label.

The data shows that there is a very strong long-term correlation between distribution growth and unit price appreciation. But if distribution growth was the full story, then EPB would have had more unit price appreciation than MMP. The data shows that MMP had close to ten times the amount of unit price appreciation than EPB. So what happened? The forward projection for EPB's distribution growth fell as its distribution grew. There is a correlation between DCF/unit growth and unit price appreciation. But we know that the key to unit price appreciation is not DCF growth. For example, if DCF growth was the full story, then EPB would have had more unit price appreciation than WPZ. The data shows that WPZ had close to 4.7 times the amount of unit price appreciation than EPB. The key for price appreciation is the maintenance or improvement in forward distribution growth and DCF projections, while also having superior distribution growth.

One of the constant themes of my Seeking Alpha articles has been to "listen to the data until it tells you a story", then learn from that story. The EPB story is saying that it is not the level of CAGR that matters, it is the change in the CAGR that matters. And if you want to perceive a changing CAGR before the market does, pay extremely close attention to changes in the distribution-to-earnings ratio. That is a lesson that can be applied in other sectors. There have been some very pro-Coke (NYSE:KO) articles in Seeking Alpha recently. I know that EPS growth at KO has been falling and the dividend/EPS ratio for KO has been rising. That is a very scary combination. I suspect that most of you will read this article too quickly to pick up the unwritten stories in the data. You will only pick up on the lessons I spell out. On the other hand, when I listen to this data, I think it is telling me to not buy Coke.

This article took the data, and provided a few stories and lessons from that data. It could easily have caused more questions than answers. And it could have inadvertently fallen into the hands of someone who was insufficiently prepped for this kind of data presentation. What are those readers to do? The National Association of Publicly Traded Partnerships provides MLP primers from Wells Fargo and Credit Suisse - along with information from several other sources. It was not my intention to cover all the basics in this article - but to start with what the well-informed reader should already know are some of the key metrics an investor should use in building a portfolio of investments in MLPs.

The editors at Seeking Alpha want to see a conclusion at the end of an article. But in many ways - this article was more of a grocery list of items than it was a story. And who writes a conclusion to a grocery list? On the other hand, there should have been some things you picked up as I went about making this list. Things like (1) distribution CAGR projections matter; (2) changes in CAGR projections matter even more; (3) the distribution-to-DCF ratio is a good tool to use in shaping your CAGR projection; (4) distribution inertia is not that good of a tool; and (5) there are metrics that suggest that this sector is fully valued. I am not panicking over that last item. You should have the same reaction. It is rarely a bad time to buy a good stock. And there are some good stocks in this sector.

Disclosure: I am long CMLP, DPM, EPD, GEL, KMP, MMP, MWE, WES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.