Delek Logistics Companions (NYSE: DKL) flies beneath the radar of most Wall Road analysts. Solely a handful of them cowl the corporate, and those that do have differing opinions, with two ranking it a maintain, one a purchase, and one other a robust purchase.
Given its lack of protection, most buyers possible do not know the way good the master limited partnership (MLP) has been at distributing money to its buyers. It lately delivered its forty sixth consecutive quarterly distribution improve. The almost 2% increase pushed its yield near 11%.
That monster revenue stream is on a sustainable basis and may proceed heading greater. That makes it a really engaging inventory for revenue.
Constructing a strong basis
Delek Logistics generates a lot of secure money move. The midstream firm supplies logistics companies to its guardian, refiner Delek US Holdings (NYSE:DK), and third-party clients. It lately amended and prolonged its agreements with Delek US for as much as seven years, rising its long-term visibility.
In the meantime, it has been working to diversify its publicity to its guardian by buying and constructing belongings to assist third-party clients. It presently will get half its earnings from its guardian, a quantity it expects will decline to 36% within the second half of subsequent 12 months because it continues rising its third-party volumes.
The MLP generates sufficient money to cowl its monster distribution fee with loads of room to spare. It ended the second quarter with a distribution protection ratio of 1.32 occasions. That wholesome protection degree allows the corporate to retain added money to fund its continued enlargement and strengthen its stability sheet.
Delek Logistics Companions has been working to shore up its monetary basis by lowering its leverage ratio, which was down to three.81 on the finish of the second quarter from 4.34 on the finish of final 12 months and 4.89 on the finish of 2022.
The corporate has been capable of decrease its leverage whereas persevering with to spend money on increasing its operations and money move. That has given it the wherewithal to extend its distribution with out elevating its protection ratio. The MLP has grown its distribution fee by 5.3% over the previous 12 months whereas maintaining its protection ratio flat with 2022’s degree of 1.32.
The gas to proceed rising
Delek Logistics Companions has been working arduous to broaden and diversify its operations lately. In 2022, it purchased 3Bear Vitality for $624.7 million in money to spice up its third-party income, diversify its operations, and improve its progress. The acquisition generates plenty of free money move, which enabled the corporate to scale back its leverage ratio and develop its distribution.
The MLP lately made two extra acquisitions. It purchased Delek US’ curiosity within the Wink to Webster Pipeline System, which transports crude oil from producers like ExxonMobil out of the Permian Basin to refining and export markets alongside the U.S. Gulf Coast. It additionally agreed to amass H2O Midstream for $230 million to broaden its midstream companies within the Permian Basin. These offers will additional diversify the corporate’s operations and third-party volumes to reduce its reliance on Delek US.
Delek Logistics Companions will even spend money on natural enlargement initiatives as alternatives come up. It lately made a remaining funding determination to construct a brand new pure gasoline processing plant close to an current facility within the Delaware Basin aspect of the Permian. This new undertaking and its latest acquisitions will flip Delek Logistics right into a premier full-service midstream supplier within the Permian Basin.
The corporate’s growth-focused investments will provide it with a rising stream of incremental money move that ought to permit the MLP to proceed pushing its high-yielding payout greater.
A well-oiled revenue machine
Delek Logistics Companions has quietly put collectively a powerful document of accelerating its distribution to buyers. The corporate backs its big-time payout with secure money move and a strong monetary basis. The MLP’s monetary flexibility has enabled it to proceed investing in rising its operations, which ought to give it the flexibility to extend its distribution funds sooner or later.
That makes it a compelling possibility for individuals who are looking for a profitable and steadily rising revenue stream (and who’re comfy with the tax complexities of investing in an MLP, together with that they ship a Schedule Ok-1 Federal Tax Type every year).
Do you have to make investments $1,000 in Delek Logistics Companions proper now?
Before you purchase inventory in Delek Logistics Companions, take into account this:
The Motley Idiot Inventory Advisor analyst group simply recognized what they consider are the 10 best stocks for buyers to purchase now… and Delek Logistics Companions wasn’t considered one of them. The ten shares that made the lower might produce monster returns within the coming years.
Take into account when Nvidia made this record on April 15, 2005… in case you invested $1,000 on the time of our suggestion, you’d have $796,586!*
Inventory Advisor supplies buyers with an easy-to-follow blueprint for achievement, together with steerage on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than quadrupled the return of S&P 500 since 2002*.
*Inventory Advisor returns as of August 12, 2024
Matt DiLallo has no place in any of the shares talked about. The Motley Idiot recommends Delek Us. The Motley Idiot has a disclosure policy.
The Secret’s Out: Buy This Magnificent High-Yield Dividend Stock Before Wall Street Catches On was initially printed by The Motley Idiot
