Tags: Magellan | Midstream | MLP | MMP

Magellan Midstream MLP Raking In Cash

By    |   Wednesday, 08 February 2012 08:39 AM

Magellan Midstream Partners (MMP), a master limited partnership (MLP) with pipelines and storage terminals in the central and eastern regions of the country, is raking in the cash and rewarding investors along the way.

Magellan, which handles crude oil, refined petroleum products, and ammonia, tallied a record $110.3 million profit in the fourth quarter, up 25 percent from a year earlier. Revenue jumped 22 percent to $486.9 million.

The partnership’s dividend has increased 35 percent over the past five years and management hopes to raise it another 9 percent this year. Shares have registered an annualized total return of 30.8 percent over the past three years.

While investors would kill for that kind of return, it should be cause for concern: Not many mature companies are able to offer annual returns of 30 percent for very long. Waiting for a pullback in Magellan’s share price might be in order.

But there’s no question of the company’s strength. Magellan has one of the biggest refined product pipeline systems in the country, transporting to more than 40 percent of U.S. refining capacity, according to Morningstar.

About 85 percent of Magellan’s cash flow stems from fee-based revenue. The partnership has price escalators built into its contracts, so it can thrive in good economic times and bad.

New projects

Magellan is putting its balance sheet to good use by expanding. In 2010 the company spent $500 million for growth purposes, including $290 million to snag 7.8 million barrels of crude oil storage in Cushing, Okla. and on pipelines between Houston and Texas City. The partnership has another $500 million worth of projects still under development.

Standard & Poor’s analyst Tanjila Shafi has a hold rating on Magellan shares. “We have a positive view of the partnership, as its cost of capital is among the lowest in our MLP coverage, and it has generated stable, fee-based earnings,” she writes.

The partnership next reports earnings May 7.

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Wednesday, 08 February 2012 08:39 AM
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