The strength of a master limited partnership’s (MLP) underlying business determines the sustainability and growth of its distribution; scrutinizing quarterly earnings and listening to management’s conference calls provide insight into a company’s growth prospects.

When evaluating an MLP’s business performance, investors should focus on distributable cash flow (DCF), a metric of profitability that includes noncash expenses. You’ll also want to play close attention to the MLP’s coverage ratio, or extent to which DCF covers the distribution. Note that this figure is the inverse of a conventional payout ratio; a coverage ratio of 1.25, for example, is equivalent to a payout ratio of 80 percent.

Higher coverage ratios generally indicate safer distributions. However, there are a few caveats. For one, the sensitivity of an MLP’s cash flow to fluctuations in commodity prices varies widely between individual firms. Names that have exposure to commodity prices should have a higher coverage ration than those that generate much of their cash flow from fee-based activities.

We also monitor the strength of our MLP’s balance sheets, though the benign rate environment has enabled most of our favorites to replace credit agreements with term debt, reduce interest costs and limit near-term refinancing risk. Many MLPs have also completed secondary offerings, taking advantage of high unit prices and limiting their reliance on debt.

Nonetheless, we keep a sharp eye on our holdings’ near-term obligations, the terms of any credit agreements and their success raising debt or equity capital. The latter effectively provides a referendum on how the market regards an MLP’s business prospects.

Distribution growth is another important consideration: A rising payout to unitholders suggests that management is confident in the MLP’s future growth prospects.

Here are the confirmed and estimated reporting dates for every MLP in our model Portfolios.

Enterprise Products Partners LP (NYSE: EPD)–Feb. 1 (confirmed)

Genesis Energy LP (NYSE: GEL)–March 2 (estimated)

Kinder Morgan Energy Partners LP (NYSE: KMP)–Jan. 18 (reported)

Magellan Midstream Partners LP (NYSE: MMP)–Feb. 7 (confirmed)

Spectra Energy Partners LP (NYSE: SEP)–Feb. 3 (confirmed)

Sunoco Logistics Partners LP (NYSE: SXL)–Jan. 26 (reported)

DCP Midstream Partners LP (NYSE: DPM)–Feb. 24 (estimated)

Energy Transfer Partners LP (NYSE: ETP)–Feb. 16 (estimated)

Inergy Midstream LP (NYSE: NRGM)–Jan. 31 (confirmed)

Targa Resources Partners LP (NYSE: NGLS)–Feb 24 (estimated)

Teekay LNG Partners LP (NYSE: TGP)–Feb. 24 (estimated)

Legacy Reserves LP (NSDQ: LGCY)–Feb. 21 (confirmed)

Linn Energy Partners LLC (NSDQ: LINE)–Feb. 24 (estimated)

Navios Maritime Partners LP (NYSE: NMM)–Jan. 26 (reported)

Penn Virginia Resources LP (NYSE: PVR)–Feb. 9 (estimated)

Regency Energy Partners LP (NYSE: RGP)–Feb. 16 (estimated)

Vanguard Natural Resources LLC (NYSE: VNR)–March 1 (estimated)

We review the quarterly numbers from Kinder Morgan Energy Partners LP (NYSE: KMP), Navios Maritime Partners LP (NYSE: NMM) and Sunoco Logistics Partners LP (NYSE: SXL) in this issue. We’ll round up all the Portfolio holdings that report in February in the next monthly issue. If an MLP’s quarterly results necessitate a rating change, we’ll issue a Flash Alert.

Kinder Morgan Energy Partners LP (NYSE: KMP)

Conservative Portfolio holding Kinder Morgan Energy Partners LP grew its DCF per share by 16 percent from year-ago levels, enough to cover the quarterly distribution by a secure 1.1-to-1 margin. One of the largest MLPs by market capitalization, Kinder Morgan Energy Partners disburses a higher proportion of its cash flow than many rivals, as much of its revenue comes from fee-generating business lines.

The star of the fourth quarter was the firm’s natural gas pipelines segment, which grew its fourth-quarter cash earnings by 19 percent from a year ago. This business line’s full-year cash flow was up 14 percent–well above the 8 percent target that management announced at the end of the year. The segment’s throughput surged by 11 percent in the fourth quarter and 13 percent over the full year.

Much of this upside stemmed from Kinder Morgan Energy Partners’ acquisition of Petrohawk Energy’s gathering and processing assets in the Haynesville Shale in Louisiana and the Eagle Ford Shale in south Texas. The Fayetteville Express and Rockies Express Pipelines also posted throughput growth and solid profit margins, as demand for capacity continues to outstrip supply.

Kinder Morgan Energy Partners’ carbon dioxide business, which services oil and gas producers in the Permian Basin, saw its profits surge 16 percent amid strong demand. The firm’s natural gas liquids division also reported solid progress.

The terminals business grew earnings by 7 percent in 2011–short of management’s full-year projection–and products pipelines generated slightly less cash flow than in 2010 because of lower volumes.

Management’s 2012 outlook calls for the MLP to disburse $4.98 per unit to investors over the course of the year, an 8 percent increase from the $4.61 per unit distributed in 2011. The firm expects to invest $1.7 billion in growth initiatives, a figure that doesn’t include any major acquisitions.

Kinder Morgan Energy Partners generates the majority of its cash flow from fee-generating businesses. However, the carbon dioxide segment’s cash flow increases or declines by $6 million for every $1 change in oil prices from the base case of $93.75 per barrel. Each $6 million is about 0.1 percent of the company’s annual net profit.

The MLP’s slate of growth projects reflects the diversity of its business. These initiatives include a $130 million petroleum condensate processing plant and a joint venture with refiner Valero Energy Corp (NYSE: VLO) to build a gasoline and diesel pipeline. Jet fuel tanks in California, biodiesel infrastructure and petroleum liquids storage capacity are also in the works.

Meanwhile, Kinder Morgan Energy Partners LP also has a promising joint venture with Copano Energy LLC (NSDQ: CPNO) that will boost the MLP’s exposure to rising liquids production in the Eagle Ford Shale. Meanwhile, demand for additional capacity has prompted the firm to pursue a number of expansions to the Trans Mountain pipeline that runs from Edmonton to British Columbia and the Puget Sound region in Washington.

On top of these growth projects, the MLP could receive a boost by purchasing assets acquired by Kinder Morgan Inc. (NYSE: KMI)–Kinder Morgan Energy Partners’ general partner–in its takeover of pipeline owner El Paso Corp (NYSE: EP). Any drop-down transactions would be delayed until the Federal Trade Commission approves the general partner’s acquistion of El Paso Corp.

In short, Kinder Morgan Energy Partners enjoyed a strong 2011 and its growth prospects look even better in 2012. Kinder Morgan Energy Partners rates a buy when the stock dips to less than 80. Investors who have substantial gains should also consider taking some profits on the table.

Navios Maritime Partners LP (NYSE: NMM)

Navios Maritime Partners LP grew its fourth-quarter operating surplus by 15.5 percent from year ago levels, benefiting from an 18.8 percent surge in revenue. This operating surplus (the MLP’s primary measure of profitability) covered the quarterly distribution by a hefty 1.7-to-1 margin.

The ship owner’s strength at a time when undercapitalized peers have been decimated by depressed day rates and declining ship values is a testament to management’s conservative operating strategy. Investors have rewarded the MLP for its resilience, bidding the units up 45 percent from the 12-month low hit on Aug. 8, 2011. Nevertheless, units of Navios Maritime Partners LP still yield almost 11 percent, a level usually reserved for the riskiest names.

For investors who have kept the faith, further price appreciation is only a matter of time, as long as the MLP’s business continues to perform.

During the fourth quarter, the ship owner secured a new long-term fixture for the Navios Apollon, boosting contract coverage to 96.6 percent of its available days in 2012, 79.3 percent in 2013 and 45 percent in 2014. With an average contracted day rate of $30,270 in 2012, $30.597 in 2013 and $33,744 in 2014, the MLP is insulated from the depressed rates that currently prevail in the spot market.

Better still, all of these contracts are insured against default by an AA-rated EU governmental agency. The eurozone’s well-documented troubles have undermined some investors’ confidence in this insurance. However, the EU’s problems didn’t keep the insurance from making Navios Maritime Partners whole on a busted contract with a Korea-based customer in 2011.

With 96.6 percent of its cash flow locked in under charter contracts, Navios Maritime Partners should post another year of solid results. The MLP also has no near-term debt maturities until its long-term credit deal expires Nov. 15, 2017. That puts the company in strong position to acquire distressed assets and grow its distribution.

Aggressive Portfolio holding Navios Maritime Partners LP rates a buy up to 20 for those who don’t own the stock already.

Sunoco Logistics Partners (NYSE: SXL)

Conservative Portfolio holding Sunoco Logistics Partners LP grew its fourth-quarter DCF by 59.4 percent to a record $110 million, enabling the MLP to cover its distribution by a gaudy 2-to-1 margin. These strong results prompted management to hike the distribution for the 28th consecutive quarter. On the year, the MLP grew its payout by 6.8 percent; we expect a similar performance in 2012.

The firm’s crude oil pipelines generated record operating income during the fourth quarter, thanks to tariff increases and higher demand. Management also cut operating expenses, improving capacity rates and lowering environmental compliance costs.

Related oil marketing operations also had a quarter for the record books, benefiting from assets acquired from Texon LP and the upswing in commodity prices.

On the negative side, operating income from refined-products pipelines dipped because of higher property taxes, though the acquisition of an 85 percent interest in the Inland Pipeline party offset this headwind.

Operating income from the terminals segment also slipped from a year ago, largely because of a $42 million noncash impairment charge for certain assets and regulatory obligations.

We expect the $665 million that the firm invested in acquisitions and expansion projects to drive incremental cash flow gains in 2012 and beyond. Sunoco Logistics Partners should receive a major boost when the Mariner West ethane pipeline–a joint venture with MarkWest Energy Partners LP (NYSE: MWE)–comes onstream in 2013. This project will provide much-needed takeaway capacity to producers in the Marcellus Shale.

The MLP has budgeted another $300 million for organic growth projects in 2012, though investors shouldn’t be surprised if the firm also acquires pipelines or other fee-generating assets.

The exit of general partner Sunoco (NYSE: SUN) from the refining business saddled Sunoco Logistics Partners with a $31 million noncash charge on the value of certain assets and $11 million in regulatory obligations if the firm shutters certain terminals. Neither of these charges, however, will affect the MLP’s DCF.

Meanwhile, the firm will enjoy lower interest costs after it rolls over $250 million in maturing debt with a coupon interest rate of 7.25 percent in mid-February. Sunoco Logistics Partners’ newly minted 30-year bonds, for example, have a yield-to-maturity of 5.62 percent.

Units of Sunoco Logistics Partners continue to trade above our buy target of 32 and yield 4.5 percent; at these levels, investors who have substantial gains on the table should consider taking a partial profit.

Investors eager to buy Sunoco Logistics Partners LP should wait until the stock pulls back to less than 32 or enter a buy-limit order at an even lower price. The stock traded hands for $24.40 per unit (on a split-adjusted basis) as recently as Aug. 8, 2011.