Today, Magellan Midstream (MMP) made an announcement that adds absolutely no value to unit holders. Partnership units are being split two-for-one.
YAY!, I'll have twice as many units. BOO!, each post-split unit will be worth half as much as today's units. Eh, I'll be right back where I am.
I think splits can make sense when share prices climb to the point that even a couple of shares for a typical individual investor get out of reach. For example, AAPL and GOOG are getting near or past the point where a split makes sense. Berkshire addressed the issue several years ago by creating a two-tier structure with BRK-A retaining the stratospheric share price and BRK-B shares targeted to be within the reach of mere mortal portfolios. But, MMP is trading in the low $80s, hardly pricey enough to close investors out of the market.
The press release explains the split, "This unit split, the second in Magellan’s history, reflects our confidence in the future growth of Magellan and enhances our liquidity by making our equity more accessible and affordable to a larger group of new investors.” OK, maybe trading volume demands more units, but I'd rather the parnership have saved the admin costs of the split and put the money towards capital investment projects.
Enough grumbling over nothing significant. I still like and plan to hang on to my MMP units, it's been one of my best investments this year. Units are up about 20% since the 2011 close and have kicked out three nice distributions (one more to go for 2012). I would welcome a lower unit price to pick up more on sale - this gets the lower unit price, but doesn't do anything about putting them on sale.
Hope everyone enjoys the holiday weekend.
Fool on!, Russ
As mentioned, I own units in MMP. No postion in any other companies mentioned.