Why MLPs Will Recover

MLPs have also now had several years adjusting to lower energy prices and living within their means. Systematic debt reduction, more conservative capital spending, focus on fee-based assets and considerably less aggressive distribution policies have already greatly improved long-term sustainability.

That’s one big reason why the Alerian bottomed in March almost 20 percent above its February 2016 low. And MLPs already offer a compelling value proposition for anyone looking for generous, growing and safe distributions. Enterprise, for example, yields 6.4 percent and trades for 35 percent less than its 2014 high, despite its payout by 18.8 percent since.

There is risk of more MLP distribution cuts this earnings season, particularly where there’s a threat to revenue. The glut of Caribbean energy storage capacity with the implosion of Venezuelan oil production is a challenge to Buckeye Partners (NYSE: BPL) and NuStar Energy LP (NYSE: NS). The FERC ruling on pipeline rates will cut into Enbridge Energy Partners’ revenue by $100 million. And some MLPs like Energy Transfer Partners are still carrying heavy debt with a rapidly approaching day of reckoning.