More on MLPs (from Barrons)

MONDAY, JULY 27, 2009
SPEAKING OF DIVIDENDS



Good Going, Partners
By SHIRLEY A. LAZO



MASTER LIMITED PARTNERSHIPS -- THE SUBJECT of a Barron's Follow-Up -- pass most of their profits along to their unitholders as tax-deferred distributions. MLPs typically invest in energy assets, and their units have taken a beating from the gyrations in oil prices. But they still make money, and four of them energized their dividends last week.

The Big-Board-listed quartet, which sport yields of 7% to 9%, are Sunoco Logistics (ticker: SXL), El Paso Pipeline (EPB), Holly Energy (HEP) and Western Gas (WES).

With 2008 revenue of more than $10 billion, Sunoco is by far the largest of the group. It was created by Sunoco (SUN), the big energy company, when it transferred most of its pipeline, terminal and storage assets to the partnership.

Despite lower crude-oil prices, which pushed second-quarter revenue down 61%, profits at Sunoco Logistics handily beat Wall Street's expectations. As a result, it declared a cash distribution for the second quarter of $1.04 per common partnership unit, 11.2% above the 2008 second quarter's payout and 2.5% over last quarter's $1.015. Yield: 7.42%. The distribution is payable Aug.14 to unitholders of record Aug. 7. The ex-dividend date is Aug. 5. Disbursements have been made since 2002, and this is the 24th increase in the past 25 quarters.

"Our strong second-quarter performance is a combination of stable cash flows in our base business, along with crude-oil-market opportunities resulting from a cantango [meaning futures prices are above spot prices] market structure," said Sunoco Logistics' CEO, Deborah M. Fretz. "Our conservative balance sheet and access to liquidity have us well positioned to further expand our business platform," she added.

Second-quarter net climbed to $66.6 million, or $1.74 per diluted limited-partner unit, 30% above the figure in the corresponding 2008 stretch. Revenue totaled $1.29 billion. Analysts, on average, had been expecting Sunoco to earn $1.49 on $1.17 billion.

The improvement came from more lease acquisitions, increased crude-oil pipeline and storage revenues, and benefits from the November acquisition of the MagTex refined-products pipeline and terminals system, plus significantly lower costs. Distributable cash flow in the quarter surged nearly 25% from the level a year earlier, to $71.8 million. Debt outstanding at June 30 came to $860.3 million.

The units set a 52-week high of 56.60 June 16. ValuEngine thinks that Sunoco "exhibits attractive volatility, momentum and risk" and therefore rates it a Strong Buy. Citigroup recently upgraded the MLP to Buy from Hold and raised its price target to 60. Sunoco's 52-week low is 27.62.


El Paso Pipeline sweetened its dividend to 33 cents per unit, for a 7% yield. That's an increase of 12% from the year-earlier distribution and 1.5% above the 32.5 cents paid in this year's first three months. El Paso has enriched its payout every quarter since its 2007 initial public offering.

The partnership, with 2008 revenue of $141 million, was formed by El Paso (EP) to own and operate natural-gas transportation pipelines and storage assets. The units currently trade around 19, and their 52-week range is 21.80 to 11.72. Goldman Sachs last week upgraded El Paso to its Conviction Buy list with a price target of 22, deeming recent weakness unjustified.

Holly Energy, which was formed by Holly Corp. (HOC) to acquire, own and operate refined-product pipeline and terminal facilities, added a penny to its payout, bringing it to 78.5 cents per unit, for a yield of 8.88%. Holly now has upped its distribution every quarter since becoming a public partnership in July 2004. The units change hands close to their 52-week high of 37.33; their 52-week low is 14.93. Goldman has downgraded Holly to Neutral, citing valuation.

Western Gas gathers, compresses, processes and transports natural gas for its parent, Anadarko Petroleum (APC), and others. It also raised its quarterly cash distribution a penny, to 31 cents per unit. Yielding 7.25%, its units hit a 52-week high of 17.15 Friday -- nearly double their 52-week low of 9.