NGL Energy Partners LP's Preferred Units: A Stable Dividend Play Amid Volatility

In a market roiled by interest rate uncertainty and economic headwinds, income investors are increasingly drawn to securities that offer both yield and stability. NGL Energy Partners LP's Class B and C preferred units have emerged as a compelling option, backed by decades of consistent distributions and a floating rate structure that mitigates exposure to rising rates. The recent announcement of a $0.7358 quarterly distribution for Class B units underscores the partnership's ability to generate reliable cash flow from its dominant wastewater infrastructure in key energy basins. Let's unpack why these units are a standout income play.

A Dividend Announcement to Note

On June 18, NGL Energy Partners LP declared its quarterly distributions for Class B, C, and D preferred units, with the Class B units set to receive $0.7358 per unit for the quarter ending June 30, 2025. This marks a notable increase from historical averages, reflecting the floating rate mechanism tied to the 3-month SOFR (Secured Overnight Financing Rate). The Class C units, which carry a slightly lower coupon, received $0.7301, also a bump from their recent averages. Both payments are due July 15, 2025, to holders of record on July 1.

Historical Consistency: A Decade of Reliability

The partnership's track record is a standout feature. Since their issuance in 2013, Class B preferred units have delivered 149 consecutive quarterly distributions, averaging $0.56 per unit until 2025. The Class C units, introduced in 2019, have maintained a consistent $0.60156 per unit until this year's adjustment. Even during the 2020 energy crisis, when many MLPs slashed payouts, NGL preserved its distributions, supported by its essential wastewater logistics business.

The recent uptick to $0.7358 for Class B reflects the floating rate's responsiveness to rising interest rates. While this adjustment may seem abrupt, it aligns with the terms outlined in NGL's partnership agreement, which allows coupon rates to reset quarterly based on prevailing rates. This structure shields investors from the risk of being locked into a low fixed rate in a rising rate environment—a stark contrast to traditional preferred stocks with fixed coupons.

Why the Floating Rate Matters

Interest rates have surged since 2020, and investors in fixed-rate preferred securities have seen their yields erode as newer issues offer higher rates. NGL's floating-rate structure, however, acts as a natural hedge. The Class B units, for example, are now yielding approximately 11.77% annually at the recent distribution rate—far above the 5% to 6% yields seen in many fixed-rate MLP preferreds. This makes them attractive to income-focused investors seeking to avoid “yield compression” risks.

Cash Flow Fortified by Wastewater Dominance

The partnership's ability to sustain distributions hinges on its core business: wastewater logistics in the Delaware, Eagle Ford, and DJ Basins. NGL operates the largest integrated wastewater pipeline network in the Delaware Basin, a critical hub for oil and gas production. Produced water volumes, which underpin its cash flow, rose to 314 million barrels in fiscal 2025, up 12% year-over-year. This growth, combined with asset sales (including $270 million in non-core assets in 2025), has strengthened its balance sheet, reducing debt and boosting liquidity.

Adjusted EBITDA hit $622.9 million in 2025, up from $593.4 million in 2024, underscoring the resilience of its business model. With 95% of its wastewater revenue under fixed-fee contracts, NGL is insulated from commodity price volatility—a key advantage in an uncertain energy market.

The Investment Case: Safety and Yield in One Package

For income investors, NGL's preferred units offer a compelling mix of safety and yield:
1. Floating Rate Shield: The adjustable coupon insulates against rising rates, a rarity in the MLP sector.
2. Consistent Cash Flow: Wastewater logistics is a non-discretionary service for drillers, ensuring steady demand.
3. Decade-Long Track Record: No missed distributions since 2013, even through energy downturns.
4. Higher Yield Now: The recent distribution increases put these units near the top of the MLP preferred yield spectrum.

Risks and Considerations

No investment is without risk. NGL's units are subordinated to debt, so a severe liquidity crunch could impact payouts. Additionally, the floating rate could cut both ways—if rates decline, so might distributions. However, given the Federal Reserve's hawkish stance and the structural need for wastewater infrastructure, the upside appears more immediate.

Bottom Line: A Solid Bet for Income Investors

NGL Energy Partners' preferred units are a standout choice for investors seeking a reliable dividend in a turbulent market. The floating rate structure, combined with the partnership's rock-solid cash flow from essential energy infrastructure, positions these units as a defensive income play. With yields above 11% and a history of resilience, they're worth considering for portfolios needing stability and punch in the income category.

Investors should review NGL's latest SEC filings and consult with a financial advisor before making investment decisions.