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Finance

The Importance of the Distribution Coverage Ratio

Maintenance capex is that part of the cash flow that is used to sustain the current cash flow, whereas growth capex is responsible for creating new assets through acquisitions, dropdowns, and building new assets. So in order to sustain current cash distribution, MLPs have to regularly incur maintenance capital expenditure to keep the assets in good shape.

Some of the MLPs that regularly incur both maintenance and growth capex in order to increase their cash distribution are MarkWest Energy Partners (MWE), Targa Resource Partners (NGLS), Summit Midstream Partners (SMLP), and NuStar Energy (NS). These MLPs have a combined weight of 27.5% in the Alerian MLP ETF (AMLP).

In the next part of the series, we’ll discuss the tax implications of investing in MLPs.

View more information: https://marketrealist.com/2015/05/importance-mlps-distribution-coverage-ratio/

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See also  https://marketrealist.com/2019/12/hp-stock-analyzing-its-dividend-yield-and-outlook/

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