A Closer Look At 2011 Distributable Cash Flows Of Selected MLPs

by: Ron Hiram

Distributable cash flow ("DCF") is a quantitative standard viewed by investors, analysts and the general partners of many master limited partnerships ("MLPs") as an indicator of the MLP's ability to generate cash flow at a level that can sustain or support an increase in quarterly distribution rates. Since DCF is not a Generally Accepted Accounting Principles ("GAAP") measure, its definition is not standardized. In fact, as shown in a prior article, each MLP may define DCF differently.

I use the term sustainable DCF to distinguish my definition from those used by the MLPs. Since "sustainability" is not a clearly defined term, my definition is clearly a subjective one. In that respect, it is not different. But by minimizing deviations from the GAAP term net cash from operating activities, I create a measurement tool that provides better consistency in evaluating an individual MLP's performance. See a prior article for a review of the variety of factors causing reported DCF to differ from sustainable DCF as I calculate it. I then use sustainable DCF as a common yardstick to improve my ability to compare MLPs. Of course, it is by no means a sole yardstick.

The table below provides selected 2011 performance metrics for the thirteen MLPs I have reviewed to date:

  • Kinder Morgan Energy Partners (NYSE:KMP)
  • Enterprise Products Partners (NYSE:EPD)
  • Energy Transfer Partners (NYSE:ETP)
  • Plains All American Pipeline (NYSE:PAA)
  • Inergy LP (NRGY)
  • Magellan Midstream Partners (NYSE:MMP)
  • Boardwalk Pipeline Partners (NYSE:BWP)
  • Buckeye Partners (NYSE:BPL)
  • Williams Partners (NYSE:WPZ)
  • El Paso Pipeline Partners (NYSE:EPB)
  • Targa Resources Partners (NYSE:NGLS)
  • Suburban Propane Partners (NYSE:SPH)
  • Regency Energy Partners (NYSE:RGP)

(Click to enlarge)

Investors looking for MLPs with solid, sustainable, DCF coverage should look at KMP, EPD, PAA, MMP, WPZ, EPB and NGLS. Within that group, investors who value relatively rapid distribution growth should focus on MMP, EPB, NGLS and WPZ. Investors concerned about unit prices being so much higher than a year ago should focus on ETP and WPZ.

Disclosure: I am long EPB, ETP, EPD, PAA, WPZ.