Blueknight Energy: 1 High-Dividend Stock Yielding 8.8%
Can a High-Dividend Stock Be a Safe Bet?
The past several years haven’t been that great for income investors. Because fixed-income products didn’t pay much, many investors turned to dividend stocks. The thing is, markets are mostly efficient. If there is a solid high-dividend stock, chances are that people will notice it. And once the buying starts, the high-dividend stock’s price would go up and its yield would no longer be attractive.
One of the implications is that if a stock’s yield remains high, it could be sign of trouble. I mean, if the company is solid and pays high dividends, why would investors stay away from it?
There are, of course, exceptions. It could be that a high-dividend stock lacks some growth potential. Or it could be that the company is running what seems to be boring operations. However, for dividend investors wanting to boost the yields of their portfolios, it could be worthwhile to take a look at those high-yield “boring” stocks.
A great example of a high-yield “boring” stock is Blueknight Energy Partners L.P. (NASDAQ:BKEP) stock.
The number-one reason to take a look at BKEP stock is its dividends. With a quarterly payout of $0.145 per unit, Blueknight Energy Partners has an impressive annual dividend yield of 8.79%. To put it in perspective, the average dividend yield of all S&P 500 companies is approximately two percent.
The big question, of course, is whether this partnership is solid. So let’s take a look at its financials.
In the third quarter of 2016, Blueknight generated $46.9 million of revenue, a 0.6% decline from the $47.2 million generated in the year-ago period. Net income came in at $11.4 million, which was substantially lower than the $14.0 million earned in the same quarter a year ago. (Source: “Blueknight Announces Third Quarter 2016 Results,” Blueknight Energy Partners L.P., November 1, 2016.)
The thing is, though, in the year-ago quarter, Blueknight benefited from $8.3 million in income related to the settlement of litigation. If you exclude this one-time item from last year’s results, you’d see that both adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and distributable cash flow showed significant year-over-year improvements. (Source: Ibid.)
In the quarter, Blueknight achieved a distribution coverage ratio of 1.49 times. This means the partnership is not paying out all its distributable cash flow, leaving a margin for safety, as well as the potential for future distribution increases.
One of the reasons why BKEP doesn’t get much investor attention is that it is in the energy sector. The partnership owns and operates a diversified portfolio of midstream energy assets consisting of approximately 985 miles of pipeline, 17.6 million barrels of crude oil and petroleum product storage capacity, 240 crude oil transportation and oilfield services vehicles, and 54 liquid asphalt cement terminals and storage facilities located in 26 states.
The past two-and-a-half years have been devastating to the energy sector. Despite its recovery this year, oil prices are still down more than 40% from the summer of 2014. During these rough times, quite a few oil and gas companies decided to cut their dividends. Some suspended their payouts completely.
How did Blueknight Energy do during this massive downturn in the energy sector?
Well, the partnership did not cut its dividends. In fact, is has actually been raising them. Since the summer of 2014—the start of the downturn in oil prices—BKEP stock’s quarterly distribution rate has increased by 11.5%. (Source: “Blueknight Energy Partners L.P., L.L.C. Dividend Date & History,” NASDAQ.com, last accessed December 7, 2016.)
Bottom Line on This High-Dividend Stock
Surviving a downturn as big as this was no easy feat. What’s more impressive is that the partnership was still raising its payout when everything else was deep in the doldrums. Despite being a high yield stock, Blueknight Energy could actually be a solid pick for dividend investors.
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