From a newsletter I subscribe to this week:
Despite a return to red ink for the market in general, I again have the privilege of leading off our summary of the week's events with an increase to our income. On Wednesday, Spectra Energy Partners SEP raised its quarterly cash distribution to $0.63875 a unit; this represents an 8.5% increase from the year-ago period. For this continued growth in distributions, I credit SEP's high-quality assets (it owns legitimate "toll road" assets that many other partnerships only claim to have), conservative use of debt, healthy cash coverage of distributions, and a business model that actually has opportunities for profitable growth in an extended environment of low commodity prices. Though SEP's unit price has been volatile, like all MLPs in recent months, the 8.1% rally this week validates my long-term preference for midstream operators that are closely aligned with consumers of energy as opposed to increasingly cash-strapped energy producers.
SEP and its parent Spectra Energy Corp. SE also held their annual analyst meeting this week. In recent years the two entities have spelled out their plans over a three-year timeframe, and this year management extended the current trend of growth for SEP distributions (1.25 cent raises each quarter) and SE dividends (an extra 14 cents each year on an annualized basis) by one additional year to 2018. Both entities see higher cash-flow coverage than previously expected as well, with SEP looking to maintain coverage of 1.2 times or better in its new three-year plan. As a result, I'm now expecting average annual distribution growth of 6% a year from SEP, up from a previous 5.5%, and our fair value estimates for SEP and SE were reaffirmed at $50 and $31, respectively. Between the two, I continue to prefer SEP as a pure-play on the organization's most appealing assets, but SE--trading at roughly the same current yield as SEP--remains a worthwhile alternative for tax-deferred accounts. |
