PSXP - Phillips 66 Partners: The Distributions Are Too Big

• The high distribution yield of Phillips 66 Partners would almost certainly be their most appealing aspect but sadly this remains vulnerable to a reduction.
• The core issue stems from their distributions being too big versus their operating cash flow, which creates a burden and thus keeps their coverage weak when using free cash flow.
• They cannot safely reduce their capital expenditure further in the medium to long term and even management admits that growth options are limited.
• Thankfully, their financial position remains healthy with only moderate leverage and adequate liquidity.
• Whilst they could use their financial position to help fund distribution payments, this still keeps them skating on thin ice and thus I believe that only a neutral rating is appropriate.

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