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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (46902)3/6/2012 1:10:14 PM
From: E_K_S  Read Replies (1) of 78627
 
Hi Paul -

Not quite sure what the best way to determine the "value" for these MLP's. You can not use PE or dividend yield. Clownbuck suggests that EV/EBITDA is a good measure but compared to what? I am holding these MLP's mainly for their distributions so their ability to generate cash flows are important to me.

For example, CMCSA (Comcast) is a non MLP and is known for their huge cash floows they generate. If you compare the MLP's cash flows to CMCSA, they are not that good. CMCSA has a relatively high PE at 19 and their dividend is not that good at 2.2% but they generate $4.61 cash flow per share. EV.EBITA for CMCSA is 6.27.

According to my StreetSmartEdge Research profile for DPM, their cash flow per share is $4.06 only 62% of what CMCSA generates when adjusted on an equivalent share price basis. The positives are that EPS growth at 85% is very good and the 5.5% dividend yield is much better than CMCSA and above my 4% criteria.

So, for me it comes down to where these MLP pipeline and gathering systems are located, what their capacity is and if there are long term growth prospects in the regions they service. Since the supply of both Oil & NG continues to be increased from all the new drilling in the U.S. domestic shale, many if not all of these MLP's should see continued sustained growth IMO. Probably better sustained growth than COMCAST expects to get through new subscribers. So for me, it's the growth story that makes me continue to hold.

Perhaps the only long term negative I can see is if the tax law preferential treatment for MLP's change. This could impact their profitability.

However, at some point these MLP's are expensive. Would it be if the Market price divided by the Cash Flow/share exceeds 10 AND the dividend distribution is less than 5%. For DPM it is 11.3 and 5.5% yield (but remember 85% EPS growth). So maybe it's on the border of being over valued even for me.

EKS
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