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Petroleum storage and transportation firm Magellan Midstream Partners L.P. (MMP - Analyst Report) – a master limited partnership – increased its quarterly common stock distribution by 3% to 48.5 cents per unit ($1.94 per unit annualized). The new distribution will be paid on November 14, 2012 to shareholders of record as of November 6, 2012.

Magellan Midstream’s latest payout hike marks the 42nd distribution increase from the time of its initial public offering (IPO) in 2001.

The strength of Magellan Midstream’s business model reflects the partnership’s commitment towards returning value to shareholders with its strong cash generation capabilities. Prior to this revision, the company had increased its quarterly distribution by 12% in July 2012.

Earlier this month, Magellan Midstream completed the split of its limited partner units in the ratio 2:1. The partnership’s board of directors had given consent for the stock split in late August. Magellan Midstream started trading on post-split basis from October 16 onward.

We believe that the increase in distribution will boost investor confidence in the stock, thereby driving unit value.

Tulsa, Oklahoma-based Magellan Midstream owns and operates a diversified portfolio of energy infrastructure assets. The partnership conducts its operations in three segments: Petroleum Products Pipeline System, Petroleum Products Terminals and Ammonia Pipeline System.

Magellan Midstream, which recently announced plans to set up a 400-mile long oil transport pipeline joint venture with Los Angeles-based energy firm Occidental Petroleum Corporation (OXY) – currently, retains a Zacks #2 Rank, which translates into a short-term Buy rating. We also maintain our long-term Outperform recommendation on the stock.

We like Magellan Midstream’s low risk, stable business model and a proven track record of distribution growth. The partnership’s high-quality and diversified midstream assets are also projected to generate stable and recurring revenues by way of long-term fee-based contracts.

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