Last week in this column, I covered Enbridge (NYSE: ENB), a pipeline company with a rock-solid 6.7% yield. Not surprisingly, that led to a request from a reader to look at the dividend safety of another pipeline company, Shell Midstream Partners LP (NYSE: SHLX), which has an even more robust yield of 9.7%. Houston-based Shell Midstream has been steadily growing its cash flow. Since Shell Midstream is a master limited partnership (MLP), we look at cash available for distribution, or CAD, as the measure of cash flow on which to base our analysis. You can see that CAD has increased in each of the past three years and that, in 2021, it is forecast to grow another $22 million, or 3%. Last year, Shell Midstream generated $658 million in CAD, but it paid investors $670 million for a 102% payout ratio. That means it paid unitholders more in distributions than it generated in cash flow (MLPs have units, not shares, and they pay distributions, not dividends). We don't like to see that. It's not sustainable and often leads to dividend cuts. This year, distributions are expected to decline to $541 million, which would account for just 78% of the expected $680 million in CAD. |
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