Part 2: Money Making Lessons From The 2014 Data For Midstream MLP Investing

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Includes: BPL, EEP, ENBL, ENLK, EPD, EQM, ET, KMI, MMP, MWE, NGLS, OKE, PAA, SEP, SXL, WES
by: Factoids
Summary

In this article, I will provide evidence that 'risk awareness' is a superior tool to building a portfolio of Master Limited Partnerships that will out perform the sector average.

I will include data from several years to produce this evidence.

I will provide evidence that risk awareness helps one avoid MLPs that tend to have falling intra-year earnings projections.

MLPS with falling intra-year earnings projections strongly tend to fail to beat sector average returns.

I am going to borrow and paraphrase a few words from a very good Seeking Alpha article on risk. "To measure risk, the finance industry focuses on an asset's return volatility. Return volatility simply means how dispersed an asset's returns are about that asset's average return over a certain period of time, including to the upside and to the downside. An asset whose returns are more stable is considered less risky, while an asset whose returns are more volatile is considered more risky. For individual investors, a risky stock is one where you have lost money on the investment."

I use intra-year DCF (Distributable Cash Flow) projection changes as one of my key metrics for measuring risk. There are fundamental explanations for the numeric volatility of these earnings projections. The volatility for MLPs is due to the type of contracts a company has own its assets. The higher the percentage of income coming from fixed fee contracts, the lower the volatility in earnings projections. Earnings volatility is also correlated to company size. Companies that serve multiple Exploration and Production companies tend to have lower earnings projection volatility due to that diversification. And diversification is correlated to company size.

This simple truth is a big deal because

It is my gut impression that most investors believe that earnings disappointments are a random event that happens roughly equally to all companies. That is not the case. One can read the data that follows on the spreads between the returns of companies with rising earnings projections compared to companies with falling earnings projections and think ... "Wouldn't it be nice if we knew this information (whether earnings were to be above or below the projections) at the beginning of the year?" Well, to a very noticeable degree, some investors DO KNOW some of this information at the beginning of the year.

The 'knowing investors' drive up the valuations on the safer or more predictable stocks by their purchases. The 'knowing investors' are less likely to purchase the stocks of companies with less predictable earnings, and in effect drive those prices down. Investors who believe that earnings disappointments happen at random see the gaps in the valuations between these two attribute groupings of stocks -- and choose the stocks which appear to be at the most attractive valuations. And those are the stocks that the 'knowing investors' tend to avoid. There will be a few random years where volatility is a good thing (and the data will show that 2013 was one of those years), and the 'unknowing investors' may actually outperform. In most years, the safer stocks within the same sector will noticeably beat the sector average. And in a few random years, volatility is a bad thing (and that happened in 2014) and 'knowing investors' will dramatically outperform. That is the lesson I draw from the data the you are about to see.

I am going to start by showing my year to date midstream MLP spreadsheet and the total returns since 2010 for those MLPs with Q4-09 distributions. I will then show my spreadsheet of DCF projection accuracy since 2006. I will then move to parsing the 2014 data by the direction of the DCF change and by my DCF accuracy rating metric.

MLP Midstream 12-31-14

The consensus DCFs were last updated on 1-21-15. The CAGR projections were updated 1-15-15. Yields are based on the Q4-14 distribution. Under the 'year to date' header, the change in the distribution is the change since Q4-13 - or the change over the last twelve months. The change in the target, EPS and DCF is the percentage change in the consensus 2014 projection that has happened since the beginning of 2014. The Dist/DCF number is the ratio of the Q4-14 distribution to the 2014 DCF projection. The 2014 DCF projection is an adjusted average of eleven DCF projections from the major brokerages covering MLPs. The CAGR is the percentage change in my CAGR projection since the beginning of the year. The target prices and EPS projections were from Yahoo Finance.


Full_Company_name   Current Distrib/ Q4 Dist Dist/dcf Dist/dcf Year-to-Date Percent Change
    Price Quarter Yield 2014 2015 Price Pr+Dist EPS Target DCF Dist* cagr

Access Midstream Partners, L.P. (NYSE:ACMP) 54.20 0.6150 4.54 73.87 70.89 -4.21 0.14 -29.19 20.67 3.42 14.95 0.00
American Midstream Partners, LP (NYSE:AMID) 19.71 0.4725 9.59 106.18 86.70 -27.22 -20.24 0.00 24.00 -14.01 4.42 -11.11
Atlas Pipeline Partners, L.P. (NYSE:APL) 27.26 0.6400 9.39 91.76 91.43 -22.23 -14.92 -63.81 -8.43 -5.42 3.23 -35.71
Blueknight Energy Partners, L.P. (NASDAQ:BKEP) 6.65 0.1350 8.12 65.85 80.60 -21.86 -15.51 -90.57 6.25 -20.39 10.20 -23.53
Buckeye Partners, L.P. (NYSE:BPL) 75.66 1.1250 5.95 104.65 91.46 6.55 12.89 -12.37 13.01 -8.51 4.65 37.50
Boardwalk Pipeline Partners, LP (NYSE:BWP) 17.77 0.1000 2.25 22.73 22.47 -30.37 -28.80 -19.83 -27.74 -11.11 -81.22 0.00
Crestwood Midstream Partners LP (NYSE:CMLP) 15.18 0.4100 10.80 97.62 92.66 -39.01 -32.42 -64.29 -11.78 -9.19 1.23 -47.92
DCP Midstream Partners LP (DPM) 45.43 0.7700 6.78 97.47 90.59 -9.77 -3.65 -20.42 2.19 -3.95 6.94 -32.84
Enable Midstream Partners (NYSE:ENBL) 19.39 0.3025 6.24 84.62 76.10 -11.86 -9.11 0.00 7.60 3.62 22.97 -25.00
Enbridge Energy Partners, L.P. (NYSE:EEP) 39.90 0.5550 5.56 107.77 100.45 33.58 41.01 -12.50 27.40 -2.83 2.12 233.33
Enterprise Products Partners L.P. (NYSE:EPD) 36.12 0.3650 4.04 69.19 66.97 8.96 13.36 2.68 22.26 1.93 5.80 -2.99
Energy Transfer Partners, L.P. (ETP) 65.00 0.9750 6.00 83.69 80.41 13.54 20.35 18.52 26.43 -0.64 7.73 40.54
EQT Midstream Partners, LP (NYSE:EQM) 88.00 0.5500 2.50 61.80 51.52 49.69 53.43 27.86 74.11 14.84 27.91 1.05
Exterran Partners, L.P. (EXLP) 21.62 0.5525 10.22 82.16 85.00 -28.48 -21.17 -23.81 1.28 3.07 4.74 0.00
Genesis Energy LP (NYSE:GEL) 42.42 0.5800 5.47 87.55 76.57 -19.31 -14.89 -29.95 1.46 -9.86 11.00 -1.16
Holly Energy Partners L.P. (NYSE:HEP) 29.91 0.5225 6.99 88.94 87.45 -7.49 -1.02 4.24 2.37 7.31 6.09 -16.67
Kinder Morgan, Inc (NYSE:KMI) 42.31 0.4400 4.16 95.65 86.70 17.53 22.42 -17.24 19.16 -2.13 7.32 0.00
Midcoast Energy Partners, L.P. (NYSE:MEP) 13.68 0.3380 9.88 104.81 83.98 -30.20 -23.31 -79.17 -19.70 -12.24 7.99 -37.50
Martin Midstream Partners LP (NASDAQ:MMLP) 26.88 0.8125 12.09 98.48 84.64 -37.20 -29.60 -96.88 -14.11 -5.17 3.83 -24.24
Magellan Midstream Partners LP (NYSE:MMP) 82.66 0.6675 3.23 72.36 68.46 30.65 34.87 24.10 42.23 20.20 19.73 2.27
MPLX or Marathon LP (NYSE:MPLX) 73.49 0.3575 1.95 79.01 69.76 65.00 68.21 2.48 26.78 23.13 20.37 0.00
MarkWest Energy Partners, L.P. (NYSE:MWE) 67.19 0.8900 5.30 89.67 84.96 1.60 6.99 -46.91 -39.98 -8.53 4.71 -31.03
Targa Resources Partners LP (NYSE:NGLS) 47.88 0.7975 6.66 67.73 69.80 -8.45 -2.35 92.05 19.02 34.19 8.87 7.25
NuStar Energy L.P. (NYSE:NS) 57.75 1.0950 7.58 100.00 95.84 13.26 21.85 12.90 31.78 14.96 0.00 46.67
ONEOK Partners, L.P. (OKS) 39.63 0.7750 7.82 94.51 93.37 -24.73 -18.84 -2.97 -5.85 -1.80 6.90 -17.91
Oiltanking Partners, L.P. (NYSE:OILT) 46.58 0.2725 2.34 61.58 56.48 53.93 57.53 -49.67 63.30 25.53 22.47 19.48
Plains All American Pipeline, L.P. (NYSE:PAA) 51.32 0.6600 5.14 91.99 86.27 -0.87 4.23 -12.73 3.06 -8.31 10.00 -12.50
Regency Energy Partners LP (NYSE:RGP) 24.00 0.5020 8.37 98.43 93.40 -8.61 -0.96 -44.23 14.32 -1.45 6.81 -7.50
Spectra Energy Partners, LP (NYSE:SEP) 56.97 0.5763 4.05 82.92 81.17 25.62 30.71 3.13 22.80 7.75 11.62 -4.62
Sunoco Logistics Partners L.P. (NYSE:SXL) 41.78 0.3825 3.66 64.56 62.45 10.70 14.76 10.00 46.95 3.04 21.43 1.12
TC PipeLines, LP (NYSE:TCP) 71.22 0.8400 4.72 85.06 81.55 47.06 54.00 12.02 38.72 6.76 3.70 50.00
Tesoro Logistics LP (TLLP) 58.85 0.6425 4.37 84.26 72.80 12.44 17.35 -24.47 11.54 -0.65 17.89 5.88
Transmontaigne Partners L.P. (NYSE:TLP) 31.51 0.6650 8.44 71.12 78.24 -25.86 -19.60 -6.76 -17.28 6.86 2.31 -6.67
Western Gas Partners LP (NYSE:WES) 73.05 0.6750 3.70 82.82 75.42 18.41 22.79 -1.73 20.41 6.89 16.38 0.00
Williams Partners L.P. (NYSE:WPZ) 44.75 0.9285 8.30 121.37 96.97 -12.01 -4.71 -45.33 6.95 -14.29 5.81 -31.48
EnLink Midstream Partners, LP (NYSE:ENLK) 29.01 0.3700 5.10 92.50 79.57 5.11 10.47 36.96 15.32 1.91 12.12 -11.76

Pipeline Average     6.15 85.13 79.25 1.22 6.84 -15.22 12.96 9.05 7.31  
Shipping
Navios Maritime Partners L.P. (NYSE:NMM) 10.17 0.4425 17.40 127.34 96.72 -46.81 -37.55 36.99 -7.33 -20.57 0.00 0.00
Teekay LNG Partners LP. (NYSE:TGP) 43.00 0.6918 6.44 91.63 85.67 0.68 7.16 7.94 -3.80 2.37 2.49 0.00
Teekay Offshore Partners LP. (NYSE:TOO) 26.79 0.5380 8.03 93.57 90.04 -19.04 -12.54 -1.87 -3.80 -4.17 2.48 0.00

Shipping Average     10.62 104.18   -21.72 -14.31 14.35 -4.98    

MidStream Average   6.49 93.81 86.82 -0.55 5.21 -12.94 11.58    

The (price change only) Alerian MLP index [the ^AMZ - which includes other MLP sectors] is -0.95% year to date.
The Alerian MLP index ETN AMJ is -0.86% and with dividends is 4.16%.
The S&P500 index ETF SPY is 11.29% and with dividends is 13.37%.
The Russell 2000 index ETF IWM is 3.69% and with dividend is 4.62%.

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

    12-31-14 12-31-11 Change 12-31-10 Change 12-31-09 Change Dist Growth DCF Growth
Full_Company_name Price Price Price Pr+Dist Price Price Pr+Dist Price Price Pr+Dist since Q4-09 since 2010
Large Capped MLPs
BPL Buckeye Partners, L.P. 75.66 63.98 18.26 38.25 66.83 13.21 38.35 54.45 38.95 76.84 21.62 4.12
BWP Boardwalk Pipeline Partners, LP 17.77 27.67 -35.78 -18.95 31.13 -42.92 -21.23 30.03 -40.83 -11.58 -79.80 -18.52
EEP Enbridge Energy Partners, L.P. 39.90 33.19 20.22 39.87 31.19 27.93 55.54 26.84 48.66 88.29 12.12 -9.25
EPD Enterprise Products Partners L.P. 36.12 23.19 55.76 73.20 20.80 73.65 98.89 15.70 130.06 170.77 32.15 33.54
ETP Energy Transfer Partners, L.P. 65.00 45.85 41.77 65.64 51.82 25.43 53.46 44.97 44.54 84.78 9.09 37.06
MMP Magellan Midstream Partners LP 82.66 34.44 140.01 158.55 28.25 192.60 220.72 21.66 281.63 325.01 88.03 101.64
NS NuStar Energy L.P. 57.75 56.66 1.92 25.11 69.48 -16.88 8.28 56.09 2.96 41.74 2.82 -1.57
OKS ONEOK Partners, L.P. 39.63 57.74 -31.36 -16.70 39.75 -0.30 26.86 31.15 27.22 69.04 42.20 41.38
PAA Plains All American Pipeline, L.P. 51.32 36.72 39.76 58.78 31.39 63.49 91.96 26.43 94.17 135.09 43.48 40.00
WPZ Williams Partners L.P. 44.75 59.99 -25.40 -8.41 46.65 -4.07 24.00 30.67 45.91 97.24 46.22 -18.18

  22.51 41.54   33.21 59.68   67.33 107.72  

    12-31-14 12-31-11 Change 12-31-10 Change 12-31-09 Change Dist Growth DCF Growth
Full_Company_name Price Price Price Pr+Dist Price Price Pr+Dist Price Price Pr+Dist since Q4-09 since 2010
Small Capped MLPs
GEL Genesis Energy LP 42.42 28.04 51.28 72.92 26.40 60.68 89.91 18.90 124.44 173.16 64.54 22.69
HEP Holly Energy Partners L.P. 29.91 26.89 11.23 32.72 25.45 17.52 46.98 19.92 50.15 96.02 31.45 34.29
MMLP Martin Midstream Partners LP 26.88 34.44 -21.95 5.18 39.37 -31.72 -0.25 31.48 -14.61 34.28 8.33 7.49
SEP Spectra Energy Partners, LP 56.97 31.96 78.25 97.61 32.85 73.42 97.87 29.57 92.66 125.57 44.07 39.00
SXL Sunoco Logistics Partners L.P. 41.78 19.70 112.08 129.94 13.93 199.93 230.96 11.05 278.10 324.03 115.49 144.33
TCP TC PipeLines, LP 71.22 47.43 50.16 70.36 52.00 36.96 61.23 36.84 93.32 135.56 15.07 1.28
TLP Transmontaigne Partners L.P. 31.51 33.60 -6.22 16.87 36.41 -13.46 14.61 27.53 14.46 60.26 12.71 8.72

  39.26 60.80   49.05 77.33   91.22 135.55  

    12-31-14 12-31-11 Change 12-31-10 Change 12-31-09 Change Dist Growth DCF Growth
Full_Company_name Price Price Price Pr+Dist Price Price Pr+Dist Price Price Pr+Dist since Q4-09 since 2010
G&P MLPs
ACMP Access Midstream Partners, L.P. 54.20 29.00 86.90 107.33 28.77 88.39 113.94 28.77 88.39 115.11   116.23
APL Atlas Pipeline Partners, L.P. 27.26 37.15 -26.62 -7.35 24.67 10.50 46.74 9.81 177.88 272.58   67.07
CMLP Crestwood Midstream Partners LP 15.18 31.74 -52.17 -39.65 27.19 -44.17 -29.55 20.97 -27.61 -8.66   -14.72
DPM DCP Midstream Partners LP 45.43 47.47 -4.30 13.58 37.40 21.47 50.89 29.57 53.64 99.03 28.33 27.42
EXLP Exterran Partners, L.P. 21.62 20.15 7.30 38.29 26.86 -19.51 10.89 22.22 -2.70 42.39 19.46 19.03
MWE MarkWest Energy Partners, L.P. 67.19 55.06 22.03 40.19 43.31 55.14 84.58 29.27 129.55 181.86 39.06 14.08
NGLS Targa Resources Partners LP 47.88 37.28 28.43 51.08 33.96 40.99 72.50 24.31 96.96 149.61 54.11 77.74
RGP Regency Energy Partners LP 24.00 24.86 -3.46 19.24 27.26 -11.96 15.32 20.95 14.56 58.55 12.81 12.09
WES Western Gas Partners LP 73.05 41.27 77.01 93.07 30.30 141.09 168.23 23.80 206.93 247.33 110.94 47.51
ENLK EnLink Midstream Partners, LP 29.01 16.22 78.85 104.04 14.40 101.46 137.95 8.60 237.33 301.34   -2.44

  21.40 41.98   38.34 67.15   97.49 145.91  

    12-31-14 12-31-11 Change 12-31-10 Change 12-31-09 Change Dist Growth DCF Growth
Company Price Price Price Pr+Dist Price Price Pr+Dist Price Price Pr+Dist since Q4-09 since 2010
Marine Transport MLPs
NMM Navios Maritime Partners L.P. 10.17 14.74 -31.00 4.99 19.45 -47.71 -11.49 14.79 -31.24 27.65 9.26 -26.84
TGP Teekay LNG Partners LP. 43.00 33.17 29.64 54.12 37.99 13.19 41.20 26.47 62.45 111.61 21.37 20.32
TOO Teekay Offshore Partners LP. 26.79 26.60 0.71 24.32 27.75 -3.46 26.28 19.95 34.29 85.06 19.56 10.58

  -0.22 27.81   -12.66 18.66   21.83 74.77  

Let's pause and list the stocks with more than 130% total returns over this time period. They are: APL, ENLK, EPD, GEL, MMP, MWE, NGLS, PAA, SXL, TCP and WES. The typical G&P MLPs (or lower fee-income Gathering and Processing Master Limited Partnerships) in this list are APL, ENLK, MWE and NGLS. It is my theory that APL and ENLK due to a recovery from an extreme price dip that came with the crash in the last recession. APL and ENLK still pay distributions that are lower than their 2007 distributions. That means half of the G&Ps on this high return list offered less than satisfactory investor experiences over the longer term of the past nine years.

What follows in my DCF projection accuracy rating spreadsheet. This is my key metric used in setting RRRs (Required Rates of Return) when MLPs lack a credit rating. A '1' (NYSE:BEST) to '5' (worst) rating is given to each MLP based on the accuracy - or lack of unpleasant surprises - of the DCF estimates. The scoring system is informal. To be a '1' - the MLP will have estimate changes less than 10% over several years - and if there are changes, then they are upgrades. I never count a large upgrade against an MLP is setting the accuracy rating. A '5' will have many changes over 10% - and those changes also strongly tend to be down grades. The rating is also time sensitive - with surprises in recent years counting more heavily than long ago surprised. The rating is direction sensitive - with downgrades resulting in demerits and upgrades being ignored.

Intra-year Changes in DCF estimates by Year: Some MLPs Have Assets That Produce More Predictable DCFs

  2006 2007 2008 2009 2010 2011 2012 2013 2014 Accuracy
Comp Chng Chng Chng Chng Chng Chng Begin End Chng Begin End Chng Begin Cur Chng Rating

ACMP         -2% 9% 1.97 2.20 12% 2.38 3.09 30% 3.22 3.33 3% 1.1
AMID             2.00 1.90 -5% 2.08 1.36 -35% 2.07 1.78 -14% 5.0
APL -12% 0% -10% -76% -26% 24% 2.85 2.48 -13% 3.08 2.50 -19% 2.95 2.79 -5% 5.0
BKEP             0.75 0.70 -7% 0.85 0.90 6% 1.03 0.82 -20% 4.0
BPL -11% -3% -6% 12% -2% -13% 4.37 3.76 -14% 4.33 4.17 -4% 4.70 4.30 -9% 2.5
BWP 24% 20% -18% -27% -6% -14% 2.20 2.17 -1% 2.26 2.08 -8% 1.98 1.76 -11% 4.0
CMLP   0% -15% -8% -10% 14% 2.40 2.07 -14% 2.20 1.52 -31% 1.85 1.68 -9% 4.2
DPM -7% 23% -24% 8% -15% -4% 2.90 2.68 -8% 3.22 2.83 -12% 3.29 3.16 -4% 2.6
ENBL             0.00 0.00   0.95 0.95 0% 1.38 1.43 4% 1.5
EEP 10% 4% 2% 4% 3% -3% 2.37 1.96 -17% 2.22 1.69 -24% 2.12 2.06 -3% 2.6
EPD 3% -12% 20% -5% 14% 24% 1.57 1.72 10% 1.87 2.00 7% 2.07 2.11 2% 1.2
ETP 47% -1% -1% -28% -10% -7% 4.00 3.70 -7% 3.92 3.99 2% 4.69 4.66 -1% 2.5
EQM             1.78 1.78 0% 2.50 2.46 -2% 3.10 3.56 15% 1.3
EXLP   13% 52% -24% -8% 2% 2.64 2.46 -7% 2.58 2.69 4% 2.61 2.69 3% 1.7
GEL 0% -19% 12% -16% 10% -9% 2.25 2.27 1% 2.44 2.25 -8% 2.94 2.65 -10% 3.0
HEP -11% 5% -1% -3% -3% 1% 2.01 2.10 4% 2.20 2.08 -5% 2.19 2.35 7% 1.2
KMI             1.53 1.64 7% 1.60 1.74 9% 1.88 1.84 -2% 1.2
MEP             0.00 0.00   0.00 0.00   1.47 1.29 -12% 3.0
MMLP -21% 5% 8% -11% -19% -13% 3.90 3.23 -17% 3.42 3.19 -7% 3.48 3.30 -5% 4.0
MMP 14% 10% 12% -7% 18% 10% 2.18 2.23 2% 2.47 2.87 16% 3.07 3.69 20% 1.0
MPLX             0.00 0.00   1.32 1.52 15% 1.47 1.81 23% 1.0
MWE 48% 21% 12% -8% 27% 23% 4.75 3.78 -20% 4.30 3.50 -19% 4.34 3.97 -9% 2.7
NGLS   8% 37% -9% 3% 14% 3.15 3.17 1% 3.42 3.19 -7% 3.51 4.71 34% 1.6
NS -8% 1% 16% -5% -11% -4% 4.70 3.13 -33% 4.10 3.25 -21% 3.81 4.38 15% 3.5
OKS 17% 9% 27% -9% -4% 30% 2.97 3.30 11% 3.23 2.95 -9% 3.34 3.28 -2% 1.4
OILT             0.88 0.88 0% 1.08 1.61 49% 1.41 1.77 26% 1.4
PAA 37% -2% 2% -2% 1% 30% 2.31 3.10 34% 2.99 3.44 15% 3.13 2.87 -8% 1.1
RGP -12% -16% 2% -18% -10% -5% 1.99 1.86 -7% 2.02 1.90 -6% 2.07 2.04 -1% 2.7
SEP   0% 11% 14% -10% -5% 2.23 2.08 -7% 2.13 2.08 -2% 2.58 2.78 8% 1.5
SXL 2% 9% 56% 26% 1% 42% 1.30 1.85 42% 1.70 2.28 34% 2.30 2.37 3% 1.0
TCP 46% -2% 19% 8% 0% 4% 4.08 3.86 -5% 3.62 3.48 -4% 3.70 3.95 7% 1.0
TLLP           0% 2.25 2.25 0% 2.80 2.40 -14% 3.07 3.05 -1% 2.0
TLP -27% 6% 8% 5% 6% 2% 3.41 3.61 6% 3.55 3.73 5% 3.50 3.74 7% 1.0
WES     0% -4% 26% 12% 2.51 2.67 6% 2.90 2.63 -9% 3.05 3.26 7% 1.2
WPZ 35% -4% 20% 6% 37% 20% 4.40 3.40 -23% 3.82 3.33 -13% 3.57 3.06 -14% 2.5
ENLK -38% -13% -5% -43% 23% 33% 1.70 1.65 -3% 2.17 1.36 -37% 1.57 1.60 2% 3.5
NMM     0% 0% 0% -37% 1.70 1.89 11% 1.65 1.79 8% 1.75 1.39 -21% 2.0
TGP 4% 5% -8% -3% -10% -7% 3.00 3.00 0% 3.08 2.86 -7% 2.95 3.02 2% 1.5
TOO           0% 2.13 2.13 0% 2.17 2.17 0% 2.40 2.30 -4% 1.5

There is one correlation that should not come as a surprise -- there is a big overlap of companies with good accuracy ratings and companies with the better credit ratings. The parsing of that data is provided below. I want to have accuracy ratings so that I will have a good metric to base an RRR assessment for companies that lack credit ratings. I also use accuracy ratings to fine tune my RRRs when I have credit ratings.

The relationship between credit ratings and accuracy ratings:

The following midstream companies had their corporate credit ratings equal to BBB: EEP, KMI, OKS, PAA and SEP. Their average accuracy rating is 1.56.

The following companies had corporate credit ratings of BBB-: BPL, BWP, DPM, ENBL, ETP, SXL and TCP. Their current average accuracy rating is 2.16.

The following companies had corporate credit ratings of BB+, BB, or BB-: ACMP, CMLP, HEP, MWE, NGLS, NS, RGP and TLLP. Their current average accuracy rating is 2.38.

The following companies had corporate credit ratings of B, B- or were note rated: EXLP, GEL and MMLP. Their current average accuracy rating is 2.90.

In the prior article on MLP CAGRs, there was a near perfect correlation between CAGRs and actual distribution increases. High growth companies strongly tended to outperform. In this article on RRRs, the correlation will be less strong in some years (with 2014 being the exception). And low risk companies have not outperformed with consistency. It is always good to be 'high growth'. But there will be years when it is not good to be 'less risky'. There is one correlation that is very consistent - the MLPs with rising DCF projections tend to be the lower risk MLPs - and the MLPs with falling projections tend to be the higher risk MLPs. The parsing data:

Intra-year DCF Estimate Increases Changes and 2014 Returns

The following companies had 2014 DCF estimate increases since the beginning of 2014: ACMP, ENBL, EPD, EQM, EXLP, HEP, MMP, MPLX, NGLS, NS, OILT, SEP, SXL, TCP, TLP, WES, ENLK and TGP. Their mean price gain for the year is 13.48%. Their mean total return for the year is 18.67% - and 12 of the 18 beat the sector median yearly price gain of -0.59%. Their average historical DCF projection accuracy rating is 1.51.

The six MLPs with estimate increases and below average returns were: ACMP, ENBL, EXLP, HEP, NGLS and TLP.

The following companies had 2014 DCF estimate decreases since the beginning of the year: AMID, APL, BKEP, BPL, BWP, CMLP, DPM, EEP, ETP, GEL, KMI, MEP, MMLP, MWE, OKS, PAA, RGP, TLLP, WPZ, NMM and TOO. Their mean price gain for the year is -12.57%. Their mean total return for the year is -6.32% - and 6 of the 21 beat the sector median yearly price gain. Their average accuracy rating is 2.83. The six MLPs with estimate decreases and above average returns were: BPL, EEP, ETP, KMI, PAA and TLLP. The projection decreases for KMI and TLLP were tiny. BPL, EEP and ETP all have improving distribution/DCF ratios that give them improving CAGR projections.

I keep my data on E&P (Exploration and Production) MLPS separate from my midstream data. All of the E&Ps had DCF projections that significantly fell and were in the process of falling even more at year's end. The sector average price appreciation was -55.94% and the sector average total return was -47.02%. None of the E&Ps beat sector average. The historical DCF projection accuracy for the E&P MLP sub-sector is terrible - and the spreads between projections from different sources is very high.

Accuracy Ratings and 2014 Returns

The following companies had DCF historical DCF accuracy ratings of less than 2.0: ACMP, ENBL, EPD, EQM, EXLP, HEP, KMI, MMP, MPLX, NGLS, OKS, OILT, PAA, SEP, SXL, TCP and TLP. Their mean price gain for the year was 11.60%. Their mean total return for the year was 16.56% - and 9 of the 17 beat the sector median yearly price gain of -0.59%. Their mean CAGR projections was 7.39%. The eight MLPs with superior accuracy ratings that failed to beat sector average were ACMP, ENBL, EXLP, HEP, NGLS, OKS, PAA and TLP. Three of those had falling 2014 DCF projections - EXLP, OKS and PAA. Five of those (ENBL, HEP, OKS, PAA and TLP) had falling CAGR projections. The merger with WMB probably hurt ACMP's price appreciation. The acquisition of APL probably hurt NGLS' price appreciation.

The following companies had DCF historical DCF accuracy ratings of at least 2.0 - but lower than 3.0: BPL, DPM, EEP, ETP, MWE, RGP, TLLP, WPZ and NMM. Their mean price gain for the year was -1.06%. Their mean total return for the year was 5.74% - and 5 of the 9 beat the sector median yearly price gain. Their mean CAGR projections was 4.79%.

The following companies had DCF historical DCF accuracy ratings that was equal or greater than 3: AMID, APL, BKEP, BWP, CMLP, GEL, MEP, MMLP, NS and ENLK. Their mean price gain for the year was -20.90%. Their mean total return for the year was -14.74% - and 2 of the 10 beat the sector median yearly price gain. Their mean CAGR projections was 4.42%. The two MLPs in this grouping that beat sector average were NS and ENLK. Improving distribution coverage caused the CAGR projection for NS to rise. ENLK's future is continuing to look brighter since its merger with Devon.

Intra-year DCF Estimate Changes and 2013 Returns

The companies that had 2013 DCF estimate increases since the beginning of 2013 had a mean price gain for the year of 45.03%. Their mean total return for the year was 51.40% - and 6 of the 8 beat the sector median yearly price gain of 32.47%. Their average historical DCF projection accuracy rating was 1.61. The companies that had 2013 DCF estimate decreases since the beginning of the year had a mean price gain for the year of 28.09%. Their mean total return for the year was 35.55% - and 7 of the 25 beat the sector median yearly price gain. Their average accuracy rating was 2.58. The companies - editing out AMID and XTEX, which had decreases in their projections, but big gains due to merger related news - that had 2013 DCF estimate decreases since the beginning of the year had a mean price gain for the year of 22.35%. Their mean total return for the year was 29.49% - and 5 of the 23 beat the sector median yearly price gain. Their average accuracy rating was 2.41.

Accuracy Ratings and 2013 Returns

The companies which had DCF historical DCF accuracy ratings of less than 2.0 had a mean price gain for the year of 23.49%. Their mean total return for the year was 29.58% - and 4 of the 14 beat the sector median yearly price gain of 32.47%. Their mean CAGR projections was 6.58%. The companies which had DCF historical DCF accuracy ratings of at least 2.0 had a mean price gain for the year of 47.28%. Their mean total return for the year was 54.44% - and 6 of the 8 beat the sector median yearly price gain. Their mean CAGR projections was 6.14%. The companies which had DCF historical DCF accuracy ratings that was equal or greater than 3 (a grouping where I did not edit out AMID and XTEX in this calculation) had a mean price gain for the year of 32.30%. Their mean total return for the year was 40.94% - and 3 of the 11 beat the sector median yearly price gain. Their mean CAGR projections was 5.52%.

Intra-year DCF Estimate Changes and 2012 Returns

The companies which had 2012 DCF estimate increases since the beginning of 2012 had a mean price gain for the year of 13.69%. Their mean total return for the year was 19.71% - and 10 of the 12 beat the sector median yearly price gain of -2.62%. Their average historical DCF projection accuracy rating was 1.33. The companies that had 2012 DCF estimate decreases since the beginning of the year had a mean price gain for the year of -13.22%. Their mean total return for the year was -6.27% - and 3 of the 18 beat the sector median yearly price gain. Their average historical DCF projection accuracy rating was 2.50.

Accuracy Ratings and 2012 Returns

The companies which had DCF historical DCF accuracy ratings of less than 2.0 had a mean price gain for the year of 6.00%. Their mean total return for the year was 11.82% - and 8 of the 13 beat the sector median yearly price gain. Their mean CAGR projections was 5.92%. The companies which had DCF historical DCF accuracy ratings of at least 2.0 - but lower than 3.0 - had a mean price gain for the year of -7.96%. Their mean total return for the year was -1.50% - and 3 of the 6 beat the sector median yearly price gain. Their mean CAGR projections was 5.65%. The following companies had DCF historical DCF accuracy ratings that was equal or greater than 3 had a mean price gain for the year of -9.37%. Their mean total return for the year was -2.20% - and 2 of the 10 beat the sector median yearly price gain. Their mean CAGR projections was 5.24%.

Intra-year DCF Estimate Changes and 2011 Returns

The companies which had 2011 DCF estimate increases since the beginning of 2011 had a mean price gain for the year of 19.07%. Their mean total return for the year was 25.77% - and 14 of the 18 beat the sector median yearly price gain of 8.32%. Their average historical DCF projection accuracy rating was 2.39. The companies which had 2011 DCF estimate decreases since the beginning of the year had a mean price gain for the year of -1.59%. Their mean total return for the year was 4.93% - and 1 of the 12 beat the sector median yearly price gain. Their average historical DCF projection accuracy rating was 2.75.

Accuracy Ratings and 2011 Returns

The companies which had DCF historical DCF accuracy ratings of less than 2.0 had a mean price gain for the year of 15.32%. Their mean total return for the year was 21.51% - and 6 of the 11 beat the sector median yearly price gain. Their mean CAGR projections was 5.76%. The companies which had DCF historical DCF accuracy ratings of at least 2.0 - but lower than 3.0 - had a mean price gain for the year of 9.42%. Their mean total return for the year was 15.34% - and 2 of the 5 beat the sector median yearly price gain [of 8.32%]. Their mean CAGR projections was 6.04%. The companies had DCF historical DCF accuracy ratings that was equal or greater than 3 had a mean price gain for the year of 7.38%. Their mean total return for the year was 14.50% - and 6 of the 13 beat the sector median yearly price gain. Their mean CAGR projections was 5.78%.

Let's review

(1) Has it historically been the case that earnings disappointments are a random event that happens roughly equally to all companies? No. There are companies with business models that are more commodity sensitive. It strongly appears that varying levels of commodity sensitivity leads to different levels of a propensity to disappoint.

(2) Can earnings disappointments be projected? Not over the short term -- but the data hints that it can over the long term. Over the long term, there will certainly be years when it is bad to be commodity sensitive.

(3) Have lower risk MLPs had better total returns? Yes.

(4) To what degree has this been the case? To as strong a degree in 2014. But there have been years where it has been good to be commodity sensitive.

This article began with me expressing the concern that "knowing investors drive up the valuations on safer or more predictable stocks by their purchases." To what degree is that the case? I use accuracy ratings to set my RRRs. Low risk stocks have lower required returns and risky stocks have higher required returns. I regularly test the data to find the price/DCF ratios of the risky vs. low risk stocks.

At the beginning of 2014, the companies with RRRs under 11% had a mean Price/DCF ratio was 18.5 while companies with RRRs at or over 11% had a mean Price/DCF ratio was 17.66. That was way too small of a spread! At the end of 2014, the companies with RRRs under 11% had a mean Price/DCF ratio was 17.74 while companies with RRRs at or over 11% had a mean Price/DCF ratio was 13.34. Investors who fail to correctly size the benefit of the low risk attribute will perceive that low risk stocks to be over valued and the higher risk stocks as under valued. And that may be a correct assessment today -- but it certainly was not the case at the beginning of the year.

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Disclosure: The author is long CMLP, DPM, EPD, GEL, MMP, MWE, WES. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.