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Midstream MLP distribution growth slow, but not extinct

At least16 energy-related master limited partnerships have raised their distributions forthe first quarter, helping to calm investor worry about the safety of midstreamdividends.

Overallsentiment in the MLP space has been one of cautious optimism, looking into the secondhalf of 2016, Kristina Kazarian, midstream analyst at Deutsche Bank, said in a May1 note.

"Throughthe first wave of earnings, we have seen our expected trends play out pretty uniformlyacross both of our coverage and our producer customers: strong Northeast volumes,weak Eagle Ford volumes, localized NGL uplifts and strong efforts to shore up CY16funding," Kazarian stated in the report.

Someanalysts expected midstream distribution to see a flatter growth trajectory throughthe first half of 2016. For instance, Daniel Schenk, an MLP analyst at FBR &Co., had identified aclear shift away from growing distributions in February.

In December,analysts and investors had begun moving away from dividend or yield-based valuationmetrics to revert to moretraditional MLP valuation approaches as unit prices plummeted and distributionsseemed to be on the chopping block. But the recent recovery in oil and gas prices,coupled with a rebound in company valuations has eased capital markets and createda healthier environment than expected.

"Ascrude oil and NGL prices recovered, the high-yield market has thawed," ChristopherSighinolfi, midstream analyst at Jefferies LLC, said in an interview. "Investorsand clients are realizing that a lot of these dividends are safe. So, MLPs can bevalued on a yield-based metric again."

Severallarge midstream names, such as KinderMorgan Inc. and CrestwoodEquity Partners LP have had to drastically cut payments to shareholders.Kinder Morgan cut dividendsby more than 75% in December 2015 and Crestwood just cut its distributions by about56% in April.

But partnershipsfrom Enterprise Products PartnersLP to Tallgrass EnergyPartners LP and EQT MidstreamPartners LP have all raised distributions recently and are optimisticabout their ability to continue to do so.

Enterprise,which raised its per-unit distributions by 1.3% quarter on quarter, has maintaineda distribution growth rate consistent with prior years. Tallgrass increased itsfirst-quarter cash distributions by 10.2% quarter over quarter, and EQT Midstreamincreased its quarterly distribution by 4.9% compared to the prior period.

LadenburgThalmann analysts Eduardo Seda and Hilary Cauley believe that Enterprise can jackup its distributions at a cumulative annual growth rate of 6% during 2016-18 andat 7%, thereafter.

Sedaand Cauley also expressed an optimistic outlook for EQT Midstream and , notingstrong distributable cash flows.

AnteroMidstream Partners' per-unit distributions for Q1'16 reflect a 7% jump from thefourth quarter as its distributable cash flows more than doubled year over yearto reach $69.3 million.  Over 2016-18, Sedaand Cauley forecast distribution growth rates of 26% and 17.1% for Antero and EQTMidstream.

andSunoco LP also recentlyannounced quarterly distribution increases of roughly 2%. Sunoco Logistics' is targeting10% to 15% distribution growth guidance for 2016.

, which its 12% to 15% distribution guidanceduring its first-quarter earnings call, raised its distributions by 1% from theprior quarter.

Overall,the pace of quarter-over-quarter distribution increases is at its slowest sincethe first quarter of 2012, Sighinolfi noted. Even so, investors are becoming lessskeptical about the debt markets, which saw fiveissuances in early April.

"Onhindsight, what investors believed three months ago has proven to be not true,"Sighinolfi said.