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How is MMP doing? November 18, 2009

Posted by shaferfinancial in Finance.

The third equity I own is MMP, a master limited partnership.  Their primary business is the transportation and storage of petroleum products.  A simplification plan which is eliminating the general partner goes into place this year, which caused some costs to be accounted for this quarter.  Going forward the costs should be lowered.

The storage part of the business is doing quite well, while the transportation is doing well in gasoline, but not so well in diesel and aviation fuel.  It acquired a new terminal in Oklahoma and added the “Longhorn Line” which is around an  additional 700 miles of pipeline.  These capital acquisitions amounted to $272M of the $510M planned for 2009.

Of concern is the increase in debt of 50% over the last year mainly due to acquisitions that have not started producing [which should reach full potential in late 2010].  Decrease in dividend coverage from 1.2 to 1.1.  This means at current operating profits the dividends could not be increased.  However, the current environment is improving and as it improves profits should improve.  The additional storage and transportation lines will also increase profits going forward as they are brought on line and maximized.  There is also a large ethanol pipeline planned if congress approves backing of the debt.

Overall, I am happy with this investment, especially since at my cost the dividend yield is 9.4%.  I will consider additional shares in the future, but watch future revenues closely.



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