Buckeye Partners, L.P. (NYSE: BPL): Earn Oversized Profits with This 9.4% Yielder
The Best High-Yield Stock in the Energy Sector?
The energy sector hasn’t been in the best of shape in recent years. With the massive tumble in commodity prices, many oil and gas companies are still deep in the doldrums. However, if investors decide to ignore this sector completely, they could be missing some great income opportunities.
Case in point, Buckeye Partners, L.P. (NYSE:BPL) runs one of the most successful pipeline businesses in the country. And it offers a payout higher than 99% of companies trading in the stock market.
Headquartered in Houston, Texas, Buckeye Partners is a master limited partnership (MLP) that owns and operates a diversified network of midstream assets. In terms of volumes delivered, Buckeye is one of the largest independent liquid petroleum products pipeline operators in the U.S., with around 6,000 miles of pipeline. It also owns and operates one of the largest independent terminalling and storage networks in the country, with more than 115 active liquid petroleum products terminals capable of storing over 56-million barrels. (Source: “Buckeye Partners, L.P.,” Buckeye Partners, L.P., last accessed November 3, 2017.)
Oil pipelines and storage terminals may not seem that exciting, but these midstream assets can be extremely costly to build. And even if you have the money, keep in mind that proposals to build new pipelines are often met with strong protests. Moreover, if one set of pipeline is put in place and in operation, it’s almost impossible to get the regulatory approval to build another one running side by side.
In other words, the business has high barriers to entry, which allows existing pipeline operators like Buckeye to enjoy monopoly status in their operating regions, making oversized profits year after year.
And because Buckeye is structured as an MLP, it is required by law to distribute most of its available cash to unitholders every year. Last week, the partnership announced a new quarterly distribution rate of $1.2625 per unit. At the current price, that translates to an annual yield of 9.4%. (Source: “Buckeye Partners, L.P. Reports Third Quarter 2017 Financial Results,” Buckeye Partners, L.P., November 3, 2017.)
To put it in perspective, the average dividend yield of all S&P 500 companies right now is a mere 1.87%. So investors purchasing Buckeye shares today would be locking in a yield more than five times the benchmark’s average.
Here’s the best part: Buckeye runs a business that’s almost entirely fee-based. In the first half of 2017, 98% of the partnership’s adjusted earnings before interest, tax, depreciation and amortizationwas fee-based. This allow the partnership to generate stable cash flows even during commodity price downturns.
Combining a high-quality midstream asset portfolio with fee-based operations, Buckeye managed to pay not only a steady dividend, but an increasing one. The chart below shows the partnership’s distribution history for the past five years.
Buckeye Partners, L.P. Distribution History
Source: “Distribution History,” Buckeye Partners, L.P., last accessed November 3, 2017.
As you can see, Buckeye has raised its per-unit payout every year for the last five years. By providing consistently growing dividends to investors during one of the biggest downturns in commodity prices, the partnership deserves the attention of income investors.