Spectra Energy Partners: Master Limited Partnership beating consensus earnings 4 out the last 5 quarters.

Spectra Energy Partners (SEP) is the MLP dropdown of Spectra Energy (SE). SEP announced 4th qtr. earnings above consensus, which lifted the stock about 15%. However, the company has little volume or commodity exposure (the soon-to-be-death-kneel of some smaller MLPs), making its 5.5% yield a bit more secure than some peers.

This is not the only quarter SEP has out earned estimates. In 4 of the last 5 quarters, SEP has beaten expectations, with the only non-beating quarter was a match with projections. Over the previous 5 quarters, the average positive surprise is 23%.

As a MLP, income investors seek dependable, tax efficient, and growing distributions. The company announced a distribution increase of 1.25 cents and is the 33rd consecutive quarter the company has increased its quarterly cash distribution. Management believes its project expansion plans will continue to allow for a growing distribution base, as indicated by the guidance offered below by management.

The annual rate of dividend growth over the past three years was at 8.0%, and over the past five years was at 7.4%.

Of concern to MLP investors in the current low energy price environment is the credit worthiness of customers. It does not matter if a pipeline has 100% of its assets spoken for if those who signed the contracts file bankruptcy or fail to maintain their business. Of 2015 revenues of $2.7 billion, over $2.4 billion is with customers with credit rating above BBB, and about half rated are AAA/AA/A.

Management is planning on $5.7 billion in capital projects in 2016 and 2017.

While MLPS are controversial in today’s low energy commodity pricing, SEP’s low exposure to prices and volumes should be seen as a very strong positive. Income investors should use the current weakness to add or initiate a position.

This article first appeared in the March issue of Guiding Mast Investments. Thanks for reading, George Fisher