Magellan Pulls Back on Distribution Growth
Magellan Midstream Partners (NYSE: MMP) has a huge 13% distribution yield. It doesn't take much effort to figure out why: Oil prices have cratered from the $50 range all the way down to the $20s. That's a devastating decline for the oil drillers that use Magellan's assets. The thing is, this midstream-focused energy company was already pulling back investor expectations before the price of oil fell off a cliff. What should investors be thinking about here?
Magellan owns the pipelines and storage facilities that help get oil from where it is drilled to where it eventually gets used. Its assets are generally backed by long-term contracts that are based on the use of the asset, not the price of what's flowing through the system. In fact, roughly 85% of this limited partnership's operating margin is tied to fees. In general it is a fairly stable business -- demand for oil and natural gas is more important than the price of the fuels, and demand is likely to remain robust over the longer term.
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Source Fool.com
