Generals on the March
In a recent article, I discussed the incentive distribution rights (IDRs) payments made by many MLPs to their sponsors (see “Avoid This Sneaky MLP Tax”). In brief, IDRs entitle the sponsor to a share of the distributions above a minimum threshold made by the affiliated partnership.
Once that minimum amount per unit is reached, IDRs act like a stealth tax on the MLP by the sponsor (also known as the general partner, or GP). I mentioned that it’s possible for investors to benefit from IDRs by buying into a GP that receives them: “There are now more than a dozen publicly traded GPs, and owning them allows an investor to profit disproportionately from growth of the affiliated partnership via the rising IDRs.”
This prompted several readers to ask for a list of these publicly traded GPs. Since several MLPs have either merged with their sponsor or otherwise recently eliminated IDRs, the list of publicly traded GPs still collecting them is down to 10 names. Here they are, along with some key financial metrics:
- EV – Enterprise value in billions of U.S. dollars as of Aug. 30
- EBITDA – Earnings before interest, tax, depreciation and amortization, in billions for the trailing 12 months (TTM)
- Debt – Net debt at the end of the most recent fiscal quarter
- FCF – Levered free cash flow in millions
- Yld – Annualized yield based on the most recent distribution
- YTD Ret – Total shareholder return (TSR), including dividends, thus far in 2016
Nearly all of the listed companies are involved in oil and gas midstream operations. The one exception is Alliance Holdings (NASDAQ: AHGP), which is the GP for coal producer Alliance Resource Partners (NASDAQ: ARLP).
Of course, many caveats apply. The proportion of the affiliate distributions covered by IDRs is one variable. Some of these GPs are corporations, while others are themselves partnerships (and hence have certain tax advantages.) Finally, some of these GPs have substantial businesses unrelated to the MLP, diluting the contribution of the IDRs on their bottom line.
Returns have varied too, but as you can see the group as a whole has done very well this year, as you would expect given its leveraged exposure to the continued development of energy infrastructure.
Which of these dues collectors is worth owning? We do in fact have several in the portfolios at MLP Profits, based on research much more thorough than today’s introduction. To receive in-depth analysis and our current portfolio recommendations, please consider subscribing.