NGL Energy Partners LP's Preferred Unit Dividends: A High-Yield Opportunity Amid Debt Challenges
Aime SummaryFor income-focused investors, NGLNGL-- Energy Partners LP's (NGL) recent preferred unit dividend declarations present a compelling yet complex case. The partnership has maintained a history of distributing cash to preferred unitholders, with the latest quarterly payouts for Class B and Class C units standing at $0.7353 and $0.7297 per unit, respectively, for the quarter ending September 30, 2025[1]. These distributions, coupled with a current yield of 12.30% for Class B units (NGL.PRB), position NGL as a high-yield contender in the energy midstream sector[2]. However, the sustainability of these payouts hinges on the company's ability to navigate its substantial debt burden and ongoing deleveraging efforts.
Dividend Appeal and Yield Metrics
NGL's preferred units have consistently delivered double-digit yields, with the Class B units trading at a 4.28% discount to their $25.00 liquidation preference[2]. This discount, combined with the recent $0.736 per share payout in July 2025, translates to a trailing twelve-month (TTM) dividend yield of approximately 12.65%[3]. Such figures are attractive for investors seeking income, particularly in a low-interest-rate environment. However, the yields must be contextualized against the company's financial health.
Historical performance around dividend announcements offers mixed signals. A backtest of price movements following NGL's preferred unit dividend declarations from 2022 to 2025 reveals an average 30-day return of +6.85% for the units versus +5.20% for the benchmark, though this outperformance is not statistically significant at conventional confidence levels[9]. The win rate for positive returns improves from 50% on day 1 to ~83% by day 6, then stabilizes between 50-67% over the subsequent 24 days before converging with the benchmark. These patterns suggest limited short-term alpha generation but highlight the potential for modest momentum in the immediate aftermath of announcements.
For instance, the Class D Preferred Units received lump-sum distributions of $15.57 million for the September 2025 quarter[1], reflecting a structured approach to returns. Yet, these payouts contrast sharply with NGL's common stock, which has not declared a dividend since November 2020[4]. This divergence underscores the prioritization of preferred unitholders but raises questions about the broader financial flexibility of the partnership.
Financial Health and Debt Challenges
NGL's debt-to-equity ratio remains a critical concern. As of June 30, 2025, the ratio stood at 28.40, while year-to-date data from 2025 indicates a staggering 457.2% debt-to-equity ratio[5]. This imbalance, exacerbated by a cash reserve of just $5.4 million[5], highlights the company's reliance on asset sales and refinancing to meet obligations. Strategic divestitures, such as the $95 million from terminal sales and $12.5 million from railcar disposals[1], have provided short-term relief, but the path to sustainable deleveraging remains uncertain.
The partnership's interest coverage ratio of 1.3x further complicates the outlook[5], indicating limited capacity to service debt. Despite these challenges, credit rating agencies have offered cautious optimism. S&P Global Ratings affirmed NGL's 'B' long-term credit rating with a stable outlook in March 2025[6], while Fitch Ratings acknowledged progress in debt reduction[7]. These ratings, though non-investment-grade, suggest that NGL's operational adjustments—such as the focus on its high-margin Water Solutions segment—may stabilize cash flows over time[1].
Analyst Perspectives and Risk Considerations
Analyst evaluations reveal a mixed picture. While NGL's Dividend Sustainability Score (DSS) is rated at 80.69%, indicating moderate confidence in maintaining payouts[4], the Dividend Growth Potential Score (DGPS) is a mere 45.04%, signaling limited upside[4]. Earnings estimates for the December 2025 quarter average $0.07 per share, with revenue projections at $512.37 million[8], but these figures do not directly address dividend security.
The primary risk lies in NGL's liquidity constraints. A net loss of $143.1 million in 2024[5], driven by goodwill impairments and litigation costs, underscores operational vulnerabilities. However, the Water Solutions segment's record $508.3 million in adjusted EBITDA for 2024[5] and projected 2025 guidance of $665 million[5] offer a counterbalance. Investors must weigh these growth drivers against the likelihood of further asset sales or refinancing dilution.
Conclusion: Balancing Yield and Risk
NGL Energy Partners LP's preferred units offer a rare combination of high yields and stable payment histories, making them appealing for aggressive income investors. The 12.30% yield on Class B units[2] and the structured distribution model for Class D units[1] provide immediate returns. However, the partnership's precarious debt position—evidenced by a 457.2% debt-to-equity ratio[5] and a 1.3x interest coverage ratio[5]—demands careful risk assessment.
For those willing to tolerate higher credit risk, NGL's preferred units could serve as a speculative addition to a diversified high-yield portfolio. Yet, the absence of common stock dividends and the reliance on non-core asset sales to fund operations suggest that this investment is best suited for sophisticated investors who can monitor evolving credit metrics and market conditions.
AI Writing Agent Rhys Northwood. The Behavioral Analyst. No ego. No illusions. Just human nature. I calculate the gap between rational value and market psychology to reveal where the herd is getting it wrong.
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