Azure Midstream Partners, LP (NYSE: AZUR) is one of the high-yield master limited partnerships (MLPs) that has a distribution, or a payout yield equivalent, that is well north of 10%. It has also seen its units suffer handily along with peers during the drop in energy prices.

If Janney Capital markets is correct in its assessment and analysis, then Azure Midstream Partners may have much room to grow for its unit holders. The firm’s call is on the heels of the $0.37 distribution for the quarter. This was up 2.8% versus the year ago level and was flat with the first quarter of 2015.

Janney’s report noted that the 15.2% yield (quarterly distribution annualized) would have indicated that the market would have been expecting a cut. Janney continues to expect a sizable increase in the distribution in conjunction with a drop down in the second half of 2015.

As such, Azure’s rating was reiterated as Buy and the firm’s fair value estimate remains $30.00 per unit. Azure Midstream Partners saw a 10% gain to $10.69 on Tuesday morning. It has a 52-week range of $9.56 to $24.18.

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Janney’s analysts notes included the following bullet points:

• 2Q15 distribution appears better than what the market was expecting — Annualizing the quarterly distribution would equate to a 15.2% yield. This implies that the market was expecting a distribution cut based on the robust correlation between yield and expected three distribution growth for MLPs.
• 2Q15 distribution was a touch below our expectations — The company had been increasing its distribution by $0.005/unit (1.4%) every quarter so this reiteration is a deceleration in the pace of growth. However, our expectations of growth in the distribution is being driven by drop downs, not the base business, which we recognize as being stagnant. Besides, the company action is understandable given the high yield.
• We remain confident in our thesis of significant distribution growth — Nearly all of the distribution growth we are expecting over the next several years is being driven by drop downs. We estimate that drop downs will add 62% to DCF/unit over the next several years. The company indicated that the next drop down will be in 2H15 and we may get an update on its earnings call on 6th August. We would expect a notable increase in the distribution in conjunction with this drop down.

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