SHLX - Shell Midstream Partners: Higher Distributions Would Do More Harm Than Good

• Even though Shell Midstream Partners reduced their distributions only a few months ago, management has already flagged the potential for higher unitholder returns, including higher distributions.
• Whilst this sounds exciting, they have minimal scope to fund significantly higher distributions without eroding their margin of safety.
• When looking towards 2022 and beyond, they should have distribution coverage of approximately 130% but with almost no capital expenditure and, thus, no growth outlook.
• If they were to push their distributions higher, the higher risks would likely further suppress their unit price as investors worry of another reduction and thus do more harm than good.
• I am still maintaining my very bullish rating due to the very high desirability of their current very high 10%+ distribution yield.

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