7 MLP General Partnership Dividend Ideas

by: Todd Johnson

Investors can discover high-growth dividend yields through Master Limited Partnerships (MLP). Many MLP General Partners (GP) possess Incentive Distribution Rights (IDR). IDRs provide General Partners an incentive for the MLP Limited Partner (LP) to succeed and beat anticipated quarterly expectations.

A MLP LP agrees, with the MLP GP, to a minimum quarterly [MQD] distribution. If the Limited Partner exceeds the MQD, then the MLP GP's Incentive Distribution Rights increase the GP's quarterly income. IDRs provide financial incentives to the General Partner for the Limited Partner to outperform the MQDs.

Atlas Energy, L.P. Common Units (NYSE:ATLS)

Business Model

Atlas Pipeline Partners acts as the general partner to Atlas Energy, L.P. Atlas Energy LP was previously known as Atlas Pipeline Holdings, L.P. ATLS. Atlas Energy is the general partner of Atlas Pipeline Partners, L.P. [APL]. APL is a midstream natural gas provider operating in engaged in the Oklahoma and Texas.

Growth Catalysts

ATLS also is a general partner in energy and exploration activities. The MQD is currently a 42-cent distribution per unit per quarter. ATLS owns 5.75-million shares in APL. ATLS currently is proceeding on further partnership agreements in energy and exploration. ATLS has a 10% stake in APL and the IDRs are structured for GP unit holders.

  • Quarterly Distribution: 11-cents
  • Annual Distribution Yield: 2.00%
  • Market Cap: $1.12-billion

Chevron (NYSE:CVX), ATLS and related third parties recently renegotiated a February 2011 business venture in which various assets were sold and the business model changed hands for the respective parties.

Alliance Holdings GP, L.P. (NASDAQ:AHGP)

Business Model

Alliance GP, (AHGP) serves as the general partner of Alliance Resource Partners, L.P. (NASDAQ:ARLP). ARLP is a diverse producer and seller of coal to U.S. utilities and industrial users. Investors should be aware of coal litigation and political activities which could impact coal usage in future years. The energy sector includes other substitutes including nuclear, natural gas and new energy discoveries.

ARLP operates 9-underground coal operation facilities. In addition, ARLP owns a coal loading terminal in Indiana. The company has continued to produce record profits and revenues. If coal is to become an accepted form of energy in U.S.'s energy future, AHGP should continue to benefit for generations to come.

AHGP has provided GP unit holders an impressive 23.9% total annualized rate-of-return over the past 5-years. This clearly distances the -1.4% SP500 rate-of-return over the same time frame.

  • Quarterly Distribution: 55.5-cents
  • Annual Distribution Yield: 4.40%
  • Market Cap: $3.0-billion

Energy Transfer Equity, L.P. (ETE)

Business Model

Energy Transfer Equity, L.P. (NYSE:ETE) is the General Partner of Energy Transfer Partners LP (NYSE:ETP). In addition, ETE owns the GP of Energy Transfer Partners, L.P. (ETP) and over 50-million ETP-units. ETE also serves as the GP for RGNC, since mid-2010. ETE owns over 26.3-million shares in RGNC. ETE owns the IDR's in ETP and RGNC.

On June 30th, ETE announced a 62.5-cents distribution for the second quarter. The 11.8% total annualized rate-of-return truly reflects ETE's focus upon unit holder's total rate-of-return. The similar 5-year time frame, for the SP500, was a .2% return.

  • Quarterly Distribution: 56-cents
  • Annual Distribution Yield: 5.00%
  • Market Cap: $9.96-billion

The company is clearly focused upon providing for future unit holders to receive advancing quarterly distributions. ETE recently announced, on June 16th, plans to acquire Southern Company. The proposed purchase will be accretive to ETE's earnings and allow for further synergies in Southern's business model, ETE's expansion plans, and ETP's ongoing operations.

Kinder Morgan, Inc. (NYSE:KMI)

Business Model

Richard D. Kinder has grown KMP at a 26% annual average since 1996. KMI has the distinct advantage of owning IDR's in KMP. The company has product breadth, experienced leadership and a solid footing in gaining additional capital for accretive acquisitions.

Kinder Morgan consists of Kinder Morgan GP (KMI); Kinder Morgan Management LLC (NYSE:KMR); and Kinder Morgan Energy Partners LP (NYSE:KMP). Page 5 of this recent Kinder Morgan presentation discusses the unit holders similarities. KMP pays quarterly distributions as cash. KMR pays quarterly distributions as additional shares.

Growth Catalysts

Kinder Morgan's daily business model is the operation of 37,000-miles of natural gas and oil pipelines. In addition, Kinder Morgan owns or operates 180-terminals in the U.S. and Canada boundaries. The core business units include: natural gas pipelines, products pipelines, terminal operations, CO2 operations, and Kinder Morgan Canada operations.

KMI is actively engaged in acquisitions, asset dispositions when necessary, and accretive income opportunities.

  • Quarterly Distribution: 29-cents
  • Annual Distribution Yield: 4.00%
  • Market Cap: $20.69-billion

In the below table, my assumptions on the KMI GP unit growth were based on KMI's own, page 24 presentation. KMI assumes LP unit holders distributions will grow at a 5% per annum rate. A 5% LP unit holder growth rates increases KMI's distributions at an annual 10-11% annual growth rate.

NuStar GP Holdings, LLC (NYSE:NSH)

Business Model

NuStar (NSH) owns holds a 2% GP, and a 15.6% limited partner interest, and 100% of the incentive distribution rights in NuStar (NS).

NS recently announced, on June 27th, a letter of intent with Velocity Midstream Partners to build a 70-mile, 12-inch pipeline reaching NS's Corpus Christi, Texas terminal facility.

NSH presented a May 26th breakdown of its 2010 operating income. The 2010 operating income breakdown follows:

    • Storage: 43%
    • Transportation: 35%
    • Asphalt and Fuels Marketing: 22%

NSH's per share total annualized rate-of-return, for the past 5-years, was 13.0%. This convincingly beats the .2% SP500 rate-of-return over the same 5-years.

  • Quarterly Distribution: 48-cents
  • Annual Distribution Yield: 5.30%
  • Market Cap: $1.54-billion


Business Model

OKE is the general partner of ONEOK Partners, LP (NYSE:OKS). OKE owns 42.8% of OKS. OKS is engaged in natural gas gathering and processing, natural gas pipelines and natural gas liquids.

OKE's per share total annualized rate-of-return, and for the past 5-years, was 15.7%. This convincingly beats the .2% SP500 rate-of-return over the same 5-years. OKE's management recently announced a class "B" share 2:1 split.

OKE presented their business model at the May 26th National Association of Publicly Traded Partnerships Investor Conference. Management focused upon OKS's business model being a fee-based, non-discretionary entity.

  • Quarterly Distribution: 52-cents
  • Annual Distribution Yield: 2.80%
  • Market Cap: $8.1-billion

Targa Resources Corp. (NYSE:TRGP)

Business Model

Targa Resources Corp (TRGP) is the GP of Targa Resources Partners (NGLS). The IDRs entitle TRGP to receive increasing percentages, up to 48%, of all cash distributed by the NGLS limited partnership. The GP interests consist of a 2% general partner interest, which is held through the 100% ownership interest in the general partner of the limited partnership (Targa Resources GP LLC); all of the outstanding IDRs; and common units of the limited partnership.

Targa Resources (TRGP) provides midstream natural gas and NGL's activities. These actions include gathering, compressing, processing and selling of of natural gas and NGL's. TRGP aggressively pursues deals which are accretive to GP unit holders and LP unit holders. Page 14 of TRGP's Analyst Day presentation highlight the IDR benefits if NGLS meets their MQD thresholds:

  • Quarterly Distribution: 27.3-cents
  • Annual Distribution Yield: 3.30%
  • Market Cap: $1.40-billion

Disclosure: I am long ETE, KMI.

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