Master Limited Partnerships: Distribution Yield Not the Only Factor

Master limited partnerships (MLPs) investors should check the coverage ratio first when evaluating high-yielding options. The distribution yield, typically the first number that catches the eye, can be misleading. A high yield does not necessarily mean the MLP can sustain its payout. The coverage ratio, which measures a company's ability to cover its dividend payments with earnings, is a more important metric to consider. It provides insight into the MLP's financial health and ability to maintain its distribution.