The month of March was a good one for pipeline master limited partnerships (MLPs). The Alerian MLP index finished the month with a gain of 8.3%, its first positive month since last October and only the fourth positive monthly finish out of the past 19.
Crude oil prices began rising in mid-February, and once the ball started rolling it cleared the way for other crude-related industries. But there’s a lot of clearing yet to do. Year to date, the MLP index is down 9.1%, and for the past 12 months it’s down 38.8%.
What will it take to declare that the MLPs have turned around? Primarily investors are going to have to buy the argument that the value of MLPs can be decoupled from the price of crude. April could provide a signal, but MLPs typically see a rise in common unit prices during the month when they begin to announce distributions. Of course if they cut or suspend distributions, that is not good news, but in today’s environment maintaining a distribution or raising it(!) can set off fireworks.
The Kayne Anderson MLP Investment Co. (NYSE: KYN) saw shares rise nearly 6%. and the Alerian MLP ETF (NYSEMKT: AMLP) experienced a jump of more than 4% in March. The largest MLP, Enterprise Products Inc. (NYSE: EPD) rose nearly 4% as well. Only Kinder Morgan Inc. (NYSE: KMI) saw shares drop (about 4%) in March.
Looking at year-to-date numbers, the big gainer is Kinder Morgan, up more than 15%. All the others have traded down in 2016. For the past 12 months, Kinder Morgan has tumbled 59%, mostly due to a 75% in its dividend. Enterprise posts the smallest loss, nearly 26%, over the past year.
The yield on the Alerian MLP ETF is up to 11.8% as of Monday, and Kayne Anderson’s yield is now over 9%. These numbers are high in part because the share prices have been so depressed. If there is a turnaround in the MLP universe, these percentages most likely will decline.
No look at the MLP world would be complete without at least a glance at TransCanada Corp.’s (NYSE: TRP) $13 billion acquisition of Columbia Pipeline Group Inc. (NYSE: CPGX). Following TransCanada’s failed effort to build the Keystone XL pipeline, the company made its bid for Columbia, expanding its footprint in the Marcellus natural gas transportation business. TransCanada’s share price has risen nearly 17% so far in 2016, most of it coming after the announcement of the acquisition.
The situation has improved for MLPs, but only for one month, and the price of crude is turning down again. As long as investors maintain a close tie between MLPs and oil prices, the common units and shares will have a tough time regaining lost ground.