The MLPs or also called the Midstream master Partnership Limited is currently a very hot topic. The investors are demanding these type of high securities. The demand rate is quite greater than we have seen before. The reason behind this could be fairly large distribution potentials. These high distribution potentials are sorted out by the revenue investors. Moreover, a large number of Midstream master Partnerships have witnessed higher growth rates.
One such example is of Magellan Midstream Partners (NYSE:MMP). The company has enjoyed a growth rate of more than 35% annually. This actually quite better than S&P 500 index where the growth rate is comparatively lesser i.e. almost a fair 12%. Although Magellan (NYSE:MMP) is a nicely run company the company’s incomes are quite high. In fact the company, the rates are more than average.
But, the Magellan group’s (NYSE:MMP) average yield per year far lower than its equivalent competitors plus its value has also rose to considerably higher point. So, the investors are advised to abstain at the moment from purchasing Magellan (NYSE:MMP) and wait for the right time to invest some more. These MLPs function by processing, transporting and storing oil and gas products.
They are very much like toll roads, who charge toll fees according to the volume being handled. So, this gives us a hint that these businesses experience the least fluctuations in comparison with other services. This system allows companies to perform far better and maintain steadier revenues. And as a consequence MLP companies have to pay a fairly large distribution yields. These yields can be as high as 5%.
Moreover in order to earn fairly reasonable favors regarding taxes, they have to distribute a great deal of cash to investors. This allows for a better and satisfactory growth and yields among the profits receiving side. Magellan (NYSE:MMP) reported its Q3 growth where the company (NYSE:MMP) saw a 30% increase in year over year cash flow. Its previous year’s about 20% higher than its last year’s reports.
In fact the company (NYSE:MMP) has an average yearly growth of 13%. However, the company’s (NYSE:MMP) yields tell a different story. The company has distribution yields of just 3%. Whereas, another fund, the Alerian MLP EFT gave distribution yields of 6%. Almost double than MMP. Magellan (NYSE:MMP) is expected to earn about $865 million in distributable incomes and nearly $3.81 for per unit distribution cash.
The company (NYSE:MMP) is currently trading at 22 times more than this year’s distribution revenue. So, we can see such high distribution incomes and very low yield indicates the company is somehow mis-priced. As viewed from an operational point of view, the company (NYSE:MMP) is flawless but at this moment it would be stupid to invest in a company with higher prices and low yield.
It is advised that the investors should wait for a while and then put their money when the time is right.