To Invest Or Not To Invest – Magellan (NYSE:MMP)
Magellan (NYSE:MMP) owns the longest refined petroleum products in the country. The company contributes to 50% of the country’s nation refining capacity and is able to store over 90 million barrels of petroleum products ranging from gasoline, diesel fuel also crude oil. The company ranks among those who provide investors a long list of benefits. These include primary fee based business, attractive quarterly returns as well as low risk projects growth. The company stands on strong pillars these include safe and efficient operations as well as superior customer service. For 16 years the company has provided the best for its investors. The distribution growth total return was 3,000%.
For years to come Magellan (NYSE:MMP) Midstream Partners will continue at this pace providing distribution growth at much better rate than its competitors. These competitors include Enterprise Products Partners (NYSE:EPD), Energy Transfer Partners (NYSE:ETP) and Kinder Morgan (NYSE:KMI).
When comparing Magellan (NYSE:MMP) with its list of competitors, Magellan (NYSE:MMP) holds the crown when it comes to cost of capital. What cost of capital actually means is raising funds for growth purposes. Since MLP spoil their investors through earnings, growth usually comes in the form of debt of selling off additional units. But this is only possible if the company’s Weighted Average Cost of Capital is minimum. This also plays a vital role to generate maximum returns as well as growth opportunity as the firm works with partners on potential growth projects. But in Magellan (NYSE:MMP)’s case the WACC is higher than its competitors but the company still enjoys high level of cost of capital figures, portraying that 86% of its funds is from equity issuances.
Another advantage the firm has is that Magellan (NYSE:MMP) bought out its general partner during the 2009 financial crisis. It was a very attractive bargain as it eliminated distribution rights along with IDRs. As the role of IDRs is to pay 50% of the cash to partners, by eliminating this option Magellan (NYSE:MMP) is able to use that cash to contribute in growth and distribution purposes.
Looking into Magellan (NYSE:MMP)’s debt structure, one could easily conclude how the company set regulation to benefit itself. For example high credit ratings, this means lowering borrowing costs. Next, the company has less debt on its name as compared to its peers. Due to which the company’s interest expense is of less or no threat to distribution.
The management has also set a long term reduction plan which is set at its favor. It played an important role back in 2008 – 2009, when financial crisis hit the market, Magellan (NYSE:MMP) was able to credit facilities and continue investing into new potentials. Also the buyout of its general partner helped the company grow its distribution by 18.5% yearly between 2008 and 2010.
Mangellan has always made decisions keeping the long term incentive in mind. With the 2010, Macondo spill, Magellan (NYSE:MMP) acquired $289 million in crude pipelines and storage capacity which helped them gain 10 to 11% internal rate of return as well as growth opportunities.
Everything mentioned above points at one thing that Magellan (NYSE:MMP) is the best MLPs in US if one is looking for good investment opportunities. It’s a strong name, with many growth opportunities and maximum profits.