Analysts differ on whether MLPs are on shaky ground after Boardwalk blowup

Monday's stunning descent of Boardwalk Pipeline Partners (BWP +1.2%) is a reminder that "equity in MLPs is not necessarily safe [and] dividends are not necessarily secure," according to Josh Young, who notes that BWP's underlying business shifted despite a long track record of raising dividend levels.

Young thinks Kinder Morgan Partners (KMP -0.9%) could be a risky investment too, though the stock has held up so far in the wake of BWP's news: KMP could now face issues similar to BWP, "as production shifts to different parts of the countries, making certain pipelines less valuable or even potentially obsolete."

Albert Alfonso, however, thinks many of BWP's problems are company specific and not widespread among other midstream MLPs; BWP's assets are concentrated in areas where natural gas has long been in decline and it needed to use internal cash flow to fund growth capex projects given its poor financial metrics.

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Comments (12)
  • tgar13
    , contributor
    Comments (235) | Send Message
    Alfonso's Article Makes much more sense
    12 Feb 2014, 02:52 PM Reply Like
  • Richard S. Daskin CFA, CFP(R)
    , contributor
    Comments (353) | Send Message
    Boardwalk indicates that there can be trouble. Kinder Morgan is scaled much bigger and is more geographically and product diverse compared with BWP. If there is more trouble out there it is probably lurking in smaller MLPs with less diversification in product or in larger long distance ethane pipelines that have a similar business and geographic mix to BWP. I have not identified any large cap natural gas pipeline that closely follows BWP so if there is a problem it is likely to be in the smaller names in my opinion.
    12 Feb 2014, 02:58 PM Reply Like
  • papayamon
    , contributor
    Comments (1426) | Send Message
    i would agree. there would also be more potential upside as well. less diversification = more risk/reward. i view this as a buying opportunity. been loading up on lnco here.
    12 Feb 2014, 03:02 PM Reply Like
  • bquartararo06
    , contributor
    Comments (56) | Send Message
    No offense to either author and appreciate their opinions, but one should consider whether the CEO of BWP paid himself $1 a year and the rest in "risky" equity (KMP funds his returns via KMI equity returns and makes up the vast % of his wealth).


    Just saying...
    12 Feb 2014, 03:09 PM Reply Like
  • FleetUSA3226
    , contributor
    Comments (891) | Send Message
    CEO of BWP is listed at Yahoo as making $1.33 million a year. Probably understates in view of perks, etc. KM doesn't do much in perks from what I've read in the past. Their perk is ownership in fine companies with good dividends.
    13 Feb 2014, 10:24 AM Reply Like
  • das555
    , contributor
    Comments (451) | Send Message
    The cabal of KMP shortists surfaces again...the stock they love to hate as they herd the lemmings. Let's see... small hedge fund manager suggests KMP blow up, Barron's magnifies the verbiage, retail investors targeted - seems to be the pirate formula du jour.
    12 Feb 2014, 03:22 PM Reply Like
  • ranchos3
    , contributor
    Comments (2) | Send Message
    KMP's pipelines are in expanding producing areas, and new ones, such as the one in western Canada are in new fields. The western Canada pipeline will do great if the keystone pipleline is not approved, but will do well even if it is. Looks like the authors need to do a little more homework.
    12 Feb 2014, 03:25 PM Reply Like
  • swissrider
    , contributor
    Comments (15) | Send Message
    but thats why the compnay pays their management - like Kinder - big bucks - to preserve the revenue stream into the future, duh, right?
    12 Feb 2014, 04:09 PM Reply Like
  • artfuldodger55
    , contributor
    Comments (10) | Send Message
    BWP's problems are related specifically to them more than the industry in general. However, the issue of high leverage and payment of dividends with little or no excess cash flow is a problem industry wide. Investors need to understand the difference between companies with dividends that are well covered and those that aren't. BWP will not be the only MLP with a negative earnings surprise that will endanger a dividend.
    12 Feb 2014, 04:09 PM Reply Like
  • Prospector88
    , contributor
    Comments (6) | Send Message
    What about ETP, always difficult to understand with it relationship with ETE also has a dividend coverage issue.
    12 Feb 2014, 04:09 PM Reply Like
  • Sumflow
    , contributor
    Comments (3595) | Send Message
    I guess Kinder taking the Bluegrass project from away from Boardwalk was more than they could bear.
    12 Feb 2014, 07:30 PM Reply Like
  • JayYen
    , contributor
    Comments (107) | Send Message
    The implied bear reasoning is that all MLPs are the same. If one has trouble then they will all have trouble. I find this logic highly flawed. A parallel way of thinking would be that if one corporate stock goes down that they all will likely fail. MLPs like other equities have winners and losers. Lumping together Kinder with BWP is a bogus argument.
    12 Feb 2014, 09:21 PM Reply Like
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