• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

4 MLPs in Danger of Cutting Dividends

Scoping out the next Kinder Morgan.
By DAVID PELTIER Dec 14, 2015 | 03:30 PM EST
Stocks quotes in this article: KMI, CEQP, DPM, NGL, NS, NGLS, VNR

David Peltier is portfolio manager of Dividend Stock advisor, a model portfolio of dividend-paying stocks. This commentary was sent to subscribers Monday Dec. 14, 2015, at 2:45 PM ET. To sign up for a free trial, click here.

The one question that we've continually received at Dividend Stock Advisor over the past week is this: Who will be the next Kinder Morgan (KMI)? So with crude oil breaking below $35 a barrel today, we're wondering which other high-dividend yields out there are unsustainable as we enter 2016?

Last week, we highlighted two other energy master limited partnerships (MLPs), Targa Resources Partners (NGLS) and Vanguard Natural Resources (VNR), whose double-digit dividend yields are at high risk of being cut in coming months.

Today, we begin to blow the doors open and will highlight four energy MLPs that will likely have to cut their dividends in a lower-for-longer commodity pricing environment. As scary as that concept may be, there are more companies that we will highlight throughout the week.

We'd like to point out that this research has been assisted by Carleton English, who has been doing tireless work writing about the energy MLPs for Real Money in the past several weeks, particularly her excellent work covering Kinder Morgan.

Crestwood Equity Partners (CEQP) is a midstream name that has natural gas storage and oil services operations. The shares have dropped 82% in 2015 and recently changed hands around $14. The company has maintained a quarterly distribution of $1.375 a share (38.6% yield) for the past eight quarters.

Management has attempted to bolster finances by merging with brethren Crestwood Midstream Partners, earlier this year. Even so, the combined company still sports a lofty 4.8x debt/EBITDA (earnings before interest, taxes, distribution and amortization) ratio. This figure does not include $500 million of preferred stock, which will also be entitled to cash flow.

In the meantime, we believe that Crestwood will struggle to generate enough cash flow to cover its quarterly dividend for the next several quarters, as will likely be the case for 2015. With a credit rating that is already two levels into junk status, we believe the company will see little sympathy from creditors if management tries to raise more funds to cover the payout.

DCP Midstream Partners (DPM) is a midstream play that processes, transfers and stores natural gas and natural gas liquids (NGL). The stock is down 54% year-to-date and recently changed hands around $20.xx. The company has offered a quarterly distribution of $0.78 a share (15.1% yield) for the past four quarters.

Management will likely be able to cover the dividend for the fourth quarter, but that is largely because of drawing down hundreds of millions of dollar on its credit line and through aggressive commodity hedging.

The hedging is important, as about 35% of DCP's business is leveraged to commodity prices. Those hedges will dwindle in 2016 and/or will become considerably more expensive. In the meantime, the company's credit rating is already two levels below investment grade.

NGL Energy Partners (NGL) is a midstream play that focuses on logistics and water treatment purchases. The stock has lost 69% year to date and recent changed hands around $8. The company has consistently boosted its quarterly distribution since going public in 2011, with the latest increase coming in October, to $0.64 a share (30.1% yield).

Just last week, management said that it will likely freeze future dividend increases in 2016. That said, NGL already cut its capital expenditure guidance last quarter and will have to try to raise hundreds of millions of new debt and tap its credit facility in the next two years, just to meet its current payout. In the meantime, the company's debt rating in three levels below investment grade, which means that future borrowing capacity could quickly dry up if energy prices remain depressed.

NuStar Energy (NS) is a midstream name that has oil pipelines, terminals and storage. The shares have dropped 43% in 2015 and recently changed hands around $32. The company has maintained a quarterly distribution of $1.095 a share (13.4% yield) since 2011.

While NuStar's dividend has been consistent over the past four years, we believe that readers should not expect that trend to continue in 2016. The company is seeing lower EBITDA from its pipeline and marketing business lines. As a result, management can only cover the payout this year by tapping its credit revolver by a couple of hundred million dollars.

The same will be true for 2016, including some expected equity dilution. In the meantime, NuStar's credit rating is already in junk status.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Investing | U.S. Equity | Energy

More from Energy

Occidental Petroleum Continues to Target Higher Prices

Bruce Kamich
May 16, 2022 2:52 PM EDT

Here's our first price target and our long term objective.

Diamondback's FANGs Could Dull in the Short-Term

Bruce Kamich
May 13, 2022 9:30 AM EDT

Let's check out the charts of this oil producer.

Trading for a Bounce -- Not a Bottom

Peter Tchir
May 10, 2022 10:00 AM EDT

Here's my thinking on the Nasdaq, bonds, energy, commodities and crypto right now.

If You Insist on Trading This Brutal Market, Don't Get Lazy With Your Stops

Bob Byrne
May 10, 2022 8:30 AM EDT

That word of warning applies to ETFs and individual stocks such as Intercept Pharmaceuticals, which we outline a trading strategy for here.

American Electric Power Could Correct Lower

Bruce Kamich
May 10, 2022 8:07 AM EDT

Let's see what the charts and indicators look like.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • 12:20 PM EDT PAUL PRICE

    A Blast From the Past Regarding Bitcoin

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login