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In recent weeks, the Internal Revenue Service approved the MLP classification for companies which engage in ethylene steam cracking. According to Encyclopedia Britannica, "Ethylene is manufactured via the steam cracking process, which is the widely accepted method by which to extract the substance worldwide. The operating facilities are similar to gas oil cracking units, operating at temperatures of 840 °C (1,550 °F) and at low pressures of 165 kilopascals (24 pounds per square inch)". In the wake of the new classification, I wanted to examine three of this year's best performing MLPs in terms of comparative performance, earnings history, and dividend behavior in the last 12 months.

Comparative Performance

From a year-to-date perspective Magellan Midstream Partners (NYSE:MMP) has returned 25.86%, Plains All American Pipeline (NYSE:PAA) has returned 22.79%, and Enterprise Products Partners (NYSE:EPD) has returned 14.23%, all of which are pretty impressive from a growth standpoint. The great thing about those returns is the fact that they've handily outpaced the returns of the SPDR S&P 500 ETF (NYSEARCA:SPY) which has only returned 10.73% to investors since the start of 2012.

Earnings History

Over the last four quarters Magellan Midstream Partners has demonstrated solid EPS results as the company has surpassed estimates by an average of 8.325%. The company's most recent quarter (June 2012) surpassed estimates by 15.90% due in part to increased margins and increased net income, which was up 34% year-over-year.

The last 12 months have also been solid for Plains All American in terms of EPS. During that period the company has surpassed EPS estimates by an average of 7.925%. The company's most recent quarter (June 2012) missed estimates by $0.01/share due in part to some of the challenges the company has faced in terms of the facilitation of Natural Gas. Most of the company's key financial variables such as segment profit per barrel and transportation segment profits were above the midpoint range of estimates. The miss, in my opinion, was an anomaly and not something I see becoming an ongoing trend as PAA is showing promise in various projects throughout the U.S.

The winner of the group in terms of EPS performance over the last 12 months is clearly Enterprise Products Partners. Over the last four quarters the company has surpassed estimates by an average of 23.28%. The company's most recent quarter (June 2012) was highlighted by an increase in year-over-year revenue ($9.78 billion vs. $8.86 billion), year-over-year operating income ($462 million vs. $298 million), and year-over-year net income ($378 million vs. $225 million).

Dividend Behavior

The good news for potential investors, especially those driven by income, is the fact all three companies have raised their quarterly distributions five times over the last 12 months.

  • Magellan Midstream Partners has raised its dividend five times in the last 12 months beginning with a $0.40/share distribution in October 2011 and culminating with a $0.485/share distribution in October of 2012. It should also be noted that MMP split 2:1 earlier this month.
  • Plains All American has raised its dividend five times in the last 12 months beginning with a $0.4975/share distribution in November 2011 and culminating with a $0.543/share distribution in October of 2012. It should also be noted that PAA split 2:1 earlier this month.
  • Enterprise Products Partners has raised its dividend five times in the last 12 months beginning with a $0.613/share distribution in October 2011 and culminating with a $0.650/share distribution in October of 2012.

Final Analysis

As long as all three companies can continue to demonstrate increased revenue and solid earnings performance not only should they be considered from a growth standpoint, but based on their recent distribution performance a clear income angle also exists. Some of the negative catalysts investors should keep in mind include, but are not limited to: unexpected earnings misses due to an increase in costs pertaining directly to production, a steep drop in oil and natural gas prices, analyst downgrades, and a sharp decline in the behavior of the U.S. economy.

Source: 3 MLPs Outpacing The S&P 500 And Regularly Increasing Distributions