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Why greater natural gas production has hurt some MLPs

Ingrid Pan, CFA

Important drivers behind the drop in Boardwalk’s stock price (Part 1 of 7)


Many master limited partnerships have assets that gather and transport natural gas. So these companies generally benefit when more natural gas is produced, as that creates revenue opportunities. However, the rapid increase in the amount of natural gas produced in the U.S. has actually hurt some MLPs.

While most MLPs right now are growing, raising distributions, and seeing their stock prices increase alongside distributions, Boardwalk Pipeline Partners (BWP) recently cut its distribution drastically. The company declared a distribution of $0.10 per quarter ($0.40 annualized), compared to the previous quarterly distribution of $0.5325. As one important part of MLP valuation is distribution yield (annualized distribution divided by stock price), BWP’s stock price plummeted following the announcement. BWP closed at $24.09 per unit prior to the announcement and closed at $13.01 per unit after.

To learn more about investing in MLPs, see the Market Realist series Targa Resources company overview and 4Q13 earnings review.

Continue to Part 2

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