Delek Logistics Partners LP: Can This 9% Yielder Pay Investors Even More?
This High-Yield Stock Could Be Special
Among high-yield energy stocks, Delek Logistics Partners LP (NYSE:DKL) has been one of my favorites.
In fact, during the stock market crash of March 2020, I told Income Investors readers, “…if an investor purchases DKL stock today, there’s a good chance they’ll earn a yield on cost that’s higher than 17.7% this year.”
Since that article was published on March 9, 2020, Delek Logistics stock has more than doubled. Plus, the company continued to pay out increasing distributions, so investors who purchased DKL stock during that dip did earn a higher yield on cost than the already jaw-dropping 17.7%.
Assuming automatic distribution reinvestment, the total return from Delek Logistics stock since the publication of my March 2020 article would be more than 160%.
Delek Logistics Partners LP (NYSE:DKL) Stock Chart
Chart courtesy of StockCharts.com
Of course, we all know that “buy the dip” is a lot easier said than done. In March 2020, most traders were selling stocks rather than buying them. As investors got more confident to move to the buy side, they found that stocks had already shot up.
But here’s the thing: because DKL stock is such a high yielder to begin with, it continues to offer oversized payouts even after the massive rally in its share price.
With a quarterly distribution rate of $0.92 per unit and a unit price of $41.00 (as of this writing), Delek Logistics stock has an annual distribution yield of nine percent. In an era when most dividend stocks pay less than four percent, that percentage certainly grabs income investors’ attention.
What’s more impressive than its yield, though, is how DKL stock’s payout has evolved over the years.
Delek Logistics is a master limited partnership (MLP) created by Delek US Holdings (NYSE:DK) to own, operate, acquire, and construct crude oil and refined products logistics and marketing assets. Headquartered in Brentwood, TN, the MLP went public in November 2012. It had an initial quarterly distribution rate of $0.385 per unit. (Source: “Investor Presentation,” Delek Logistics Partners LP, last accessed June 29, 2021.)
Since then, the partnership has raised its distribution every single quarter. That’s 32 consecutive quarterly payout increases!
Considering the number of ups and downs the energy markets have gone through since 2012, Delek Logistics stock’s consistent distribution hikes show that it could be something special.
Moreover, the partnership has had no problem covering its oversized payouts.
In 2020, Delek Logistics generated $207.7 million of distributable cash flow. Its actual cash distributions, on the other hand, totaled $145.7 million for the year. That resulted in a distribution coverage ratio of 1.4, leaving a sizable margin of safety. (Source: “Delek Logistics Partners, LP Reports Fourth Quarter 2020 Results,” Delek Logistics Partners LP, February 23, 2021.)
For the first quarter of 2021, the MLP earned $52.5 million of distributable cash flow while paying $40.0 million in cash distributions. Therefore, it had a distribution coverage ratio of 1.3, meaning the payout was once again safe. (Source: “Delek Logistics Partners, LP Reports First Quarter 2021 Results,” Delek Logistics Partners LP, May 4, 2021.)
Regarding distributions, the company’s chairman and chief executive officer, Uzi Yemin, said, “Our long history of distribution growth continues and we remain committed to delivering another 5% increase in 2021. Our distribution coverage and leverage ratios remain healthy and create flexibility.” (Source: “Delek Logistics Partners, LP (DKL) CEO Uzi Yemin on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, May 5, 2021.)
Keep in mind that Delek Logistics’ first-quarter 2021 cash distribution of $0.92 per unit represented a 3.4% increase over its first-quarter 2020 payout of $0.89 per unit. Therefore, if the partnership follows through on that five-percent distribution growth target this year, it will be dishing out bigger distribution checks in the quarters ahead.
Bottom Line On Delek Logistics Partners LP
Ultimately, as is the case with other energy stocks, Delek Logistics Partners LP’s unit price can fluctuate due to changes in investor sentiment toward the sector.
But when it comes to providing unitholders with generous, reliable, and growing distributions, few names in the midstream energy world can compete with DKL stock.