The coverage ratio for Q4 was actually 2.7X including the asset sales. This suggests the K-1s are going to contain some significant changes. In the past unit holders got a K-1 with passive losses forward, but this year most should see either a neutral number in box #1 or a positive number. With profits at the current level the tax deferral portion of the distribution is declining.
EPD could increase the distribution by about 50% in total and still continue to fund projects and improve its bond rating. Analyists have been split on its plans with about 1/2 showing a .01 increase for 2102 per quarter and several suggesting an increase of .01 for Q1 and .015 in the latter 1/2 of the year.
This is the first MLP to report. Their accountants must have been really busy. It also gives a good picture of what to expect from the other midstream MLPs. High oil and cheap gas is the perfect environment.
Just sold 2/3 of EPD position as the price is out of line with distribution. For 3 years they have raised distribution .007 or .008 each quarter. They talk about raising it second half of year. Why not next 2 quarters. KMP gives 1 years guidance-NGLS and WPZ gives % guidance for year. I think I will wait for guidance or pull back to re-enter
EPD has raised the same .0075 for the last 4 years or so. They are building not for today but tomorrow. I agree there is little price appreciation in the short run, but much more in the long run.
They said in the CCall they would examine their distribution rate after the first 1/2 (they meet in late May to set the policy for the coming year). The reason for doing that was stated as an unusual expansion and need for cash combined with avoiding any equity raises in 2012.
Understand KMP guidance, but their numbers are a bit scary. What is their distribution to DCF number? - over 95% if I remember correctly. There is no reason to have a pullback specifically related to EPD with their great guidance for projects coming on line, but those projects are going to result in DCF lower in 2012 than it was in 2011. If you look at the processing margins for last year we are not likely to have a repeat. They are great today and not over the top.
My gut suggests that MLPs in general will have an excellent 2012 until the election. At that time we either continue up or move down a bit depending on the election results. In 2013 we will be faced with interest rates that will be moving up a bit and this will put pressure on MLPs that cannot raise their distributions faster than the rate of inflation. Bottom line is in a time of rising interest rates companies with the lowest cost of capital have the best opportunity going forward. EPD like it or not has the best credit rating and no GP, thus has the lowest cost of credit/debt.
Now that I have sounded all grumpy - I would not be a buyer of EPD or OKS to name just two. The yields make no sense. I do not think they will move much up or down in price over the next 18 months, but there are a couple of others with significantly more upside in the short term. Note Long Term for me is 5+ years, medium 2-5 years and short anything less.