Summary
- The MLP currently throws off a $3.42/unit annual dividend, yields 6.3%, and still has a relatively robust growth profile moving forward.
- Yet the elimination of the IDRs and 2% economic interest up to the general partner will take some time to digest. It is a welcome development nonetheless.
- The up to 1 million bpd world-class Gray Oak pipeline is 80% complete and will go in-service by year-end. PSXP owns 42.25% of Gray Oak.
- In the meantime, Q2's EPS report was a solid beat and the partnership's balance sheet is rock solid.
- PSXP remains the class-act of the refiner MLP space.
Last October I wrote a Seeking Alpha piece titled Phillips 66 Partners: Hamstrung By The IDRs. The article highlighted that the 50/50 high IDR split meant that while Phillips 66 Partners (PSXP) was responsible for financing 100% of its growth projects and drop-down purchases, half of the incremental distributable cash flow went up the ladder to General Partner Phillips 66 (PSX). That is one of the well-known pitfalls of the MLP model (among many others) and was a black cloud hanging over PSXP's head. As the chart below shows, the units have been range-bound for the last 3 years even as the quarterly distribution grew from $0.505/unit to the current $0.855/unit (up ~70%):
Source: Yahoo Finance
The current $3.42/unit annual rate equates to a 6.2% (tax-advantaged) yield. Many investors might find that very attractive. Also, the units might work higher after last December's washout at ~$42/unit and the removal of the IDR/GP economic interest. Hopefully, none of my followers sold PSXP in the low $40s last year. That was actually a great buying opportunity but most were too stunned watching the market fall off a cliff that sellers dominated trading.
