Re-Evaluating MLP Valuations

Master limited partnerships (MLP) are evolving in response to the shale gas market entering a more mature phase. Rather than focusing on distribution growth, companies are now focused on self-funding in order to improve. This move is resulting in a more diversified valuation metric for MLP investors than past metrics that have largely concentrated on yield.

According to a recent white paper from Alerian, “Why Yesteryear’s Valuation Metrics Aren’t Sufficient for Today’s MLP,” as more retail investors leave the MLP space there is a growing need to attract more general investors.

The paper noted that as more MLPs have stopped distribution cuts, distribution-based valuation methods are increasing their usefulness. On the flip side, these valuation methods are less useful for general investors since they are difficult to compare to other sectors.