High MLP/Midstream Yields But Ample Coverage, Payout Ratios
Published Sep 2, 2020 on Seeking Alpha

Seeking AlphaCommodities  | Market OutlookHigh MLP/Midstream Yields But Ample Coverage, Payout RatiosSep. 2, 2020 8:00 AM ET|| Includes: ALEFX, AMJ, AMLP, AMU, AMUB, AMZA, ATMP, BMLP, CBA, CEM, CEN, CNXM, CQP, CTR, DSE, EMLP, EMO, ENFR, FEI, FEN, FMO, FPL, GER, GMZ, ILPRX, IMLP, IPPLF, JMF, JMLP, KMF, KYN, MIE, MLPA, MLPB, MLPI, MLPO, MLPS, MLPX, MMP, NGL, NML, NTG, PAA, SMM, SRF, SRV, TTP, TYG, WESby: AlerianAlerian Master limited partnerships, oil & gas, energy, natural resourcesAlerian Insights.cls-1{fill:#024999;}SummaryDistribution coverage for MLPs remains elevated relative to history after 1Q20 distribution cuts, implying that MLPs are better able to afford their distributions today than in the past, yet yields remain elevated compared to history.
Payout ratios for 1H20 and 2Q20 are in line with 2018 and 2019 data, despite headwinds in 2Q20, highlighting midstream’s ability to afford dividend payments.
A few MLPs have begun to emphasize free cash flow after dividends in place of MLP-centric metrics like distribution coverage and distributable cash flow.

Despite the lingering uncertainty in energy markets, 2Q20 dividend payments were steady, with the vast majority of energy infrastructure names holding payouts flat and a few names even increasing dividends sequentially (read more). As of August 28, yields for the Alerian MLP Infrastructure Index (AMZI) and Alerian Midstream Energy Select Index (AMEI) sat at a lofty 12.5% and 8.0%, respectively, well above their five-year averages of 8.5% and 6.1%. With such elevated yields, distribution coverage and payout ratios are helpful for understanding midstream's ability to afford current payouts. Today's note examines how MLP distribution coverage and midstream dividend payout ratios have fared amid macro volatility and discusses the rising importance of free cash flow after dividends.
MLP distribution coverage remains elevated by historical standards. After COVID-19 began to disrupt oil markets in... Read more