The thing to understand about midstream MLPs -- which provide processing, transportation, and storage services for oil and gas -- is that it is a fixed-fee, long-term contract dominated business. For example, 77% of Plains All American's 2015's projected adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, is derived from fixed-fee contracts, and management expects that to increase to over 80% in the next few years. This ensures long-term cash flow predictability, minimizes short-term exposure to falling oil prices, and allows MLPs such as these to sustain or even grow generous distributions in the face of a severe oil crash.
Crashing oil prices have left many oil companies desperate to conserve cash and resulted in some painful dividend cuts. However, not all energy stocks are created equal, and the business models of pipeline operators such as Enterprise Products Partners (NYSE: EPD), Plains All American Pipeline (NYSE: PAA), Genesis Energy (NYSE: GEL), and Plains GP Holdings (NYSE: PAGP) have enabled them not only to weather the oil storm, but continue rewarding investors with growing distributions.
Source: Motley Fool
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