Delek Logistics Partners LP’s Dividend Has Grown for 31 Consecutive Quarters
Don’t Ignore The Massive Income Potential of DKL Stock
Delek Logistics Partners LP (NYSE:DKL) is the kind of supersized high-yield stock that investors should look at right now. Yes, the stock market is trading at record levels, but thanks to the Federal Reserve, interest rates are basically zero.
If you had a million dollars in your retirement portfolio, your so-called income investments would reward you with about $10,000. The yield on the S&P 500 is a little better, at 1.55%, but even that only works out to $15,500 from a million-dollar investment.
After socking a million dollars away, no one would look forward to those kinds of returns.
If you want to trounce the market with both capital appreciation and scorching dividend growth, look no further than Delek Logistics. The Brentwood, TN-based company owns and operates logistics and marketing assets for crude oil, intermediate petroleum products, and refined petroleum products in the U.S. (Source: “Investor Presentation, Delek Logistics Partners: September 2020,” Delek Logistics Partners LP, last accessed January 25, 2021.)
The company operates in two segments: Pipelines/Transportation and Wholesale/Terminalling.
Delek Logistics Partners LP’s Pipelines/Transportation segment includes pipelines, trucks, and ancillary assets that provide crude oil gathering; crude oil, intermediate product, and finished product transportation; and storage services. This segment has approximately 805 miles of crude oil and product transportation pipelines, a 600-mile crude oil gathering system in Arkansas, and storage facilities with shell capacity of 10 million barrels.
The Wholesale/Terminalling segment provides wholesale marketing, transportation, storage, and terminalling services related to refined products to independent third parties. This segment has active shell capacity of approximately 1.4 million barrels.
Chart courtesy of StockCharts.com
Delek Logistics stock has experienced solid growth since the company was created in 2012, although the growth hasn’t been unsustainably meteoric. Since the company operates in the oil and gas industry, it’s susceptible to economic conditions and market volatility—whether real or imagined.
Regardless, since the start of 2013, the company’s first full year in business, DKL stock has advanced 226%. Since the coronavirus-fueled sell-off sent stocks cratering in March 2020, Delek Logistics stock has soared by 572%. From 2013 to 2020, the stock has expanded at a compound annual growth rate of 13.8%.
31 Consecutive Quarters of Dividend Growth for Delek Logistics Stock
Then there’s the company’s dividend.
Because Delek Logistics Partners LP is a master limited partnership (MLP), it has to distribute the vast majority of its available cash to its unitholders. This allows the company to pay little or no income tax at the corporate level. As a result, Delek Logistics and other MLPs offer up some of the highest-yielding dividends in today’s market.
On January 25, the company declared its quarterly cash distribution for the fourth quarter of its fiscal 2020 as $0.91 per common limited partner unit. (Source: “Delek Logistics Partners, LP Increases Quarterly Cash Distribution to $0.91 per Common Limited Partner Unit,” Delek Logistics Partners LP, January 25, 2021.)
This distribution represents a 0.6% increase from the third-quarter 2020 distribution of $0.905 per common limited partner unit, and a 2.8% increase from the fourth-quarter 2019 distribution of $0.885 per common limited partner unit. Since August 2013, the company’s quarterly dividend has soared by 130.4%, from $0.395. (Source: “DKL Dividend History,” Nasdaq, last accessed January 25, 2021.)
Is the company’s high-yield dividend safe? Its payout ratio is straddling 90%, which is the benchmark level of safety for me. That still leaves the company some financial wriggle room.
Case in point: during its third quarter, the company eliminated the incentive distribution rights, which removes an overhang from DKL stock and lowers the company’s cost of capital. This better positions Delek Logistics to pursue growth opportunities.
Delek Logistics stock’s distribution coverage and leverage ratios have exceeded year-end targets and create flexibility. Moreover, the MLP completed the Red River pipeline expansion in the third quarter, which should provide financial momentum in 2021. (Source: “Delek Logistics Partners, LP Reports Third Quarter 2020 Results,” Delek Logistics Partners LP, November 4, 2020.)
That says the company’s dividend payout remains safe and sound. In fact, Delek Logistics has committed to growing its distribution by five percent every year.
“This marks the 31st consecutive quarterly increase in the cash distribution and demonstrates stability of the business despite a difficult macro energy environment,” said Uzi Yemin, Delek Logistics’ chairman, president, and CEO. (Source: “Delek Logistics Partners, LP Increases Quarterly Cash Distribution to $0.91 per Common Limited Partner Unit,” Delek Logistics Partners LP, January 25, 2021, op. cit.)
“We delivered on our 5 percent distribution growth target for 2020, while exceeding our year-end guidance levels for both distribution coverage and leverage ratios.”
The Bottom Line on Delek Logistics Partners LP
Delek Logistics Partners LP is a growth-oriented, financially robust company with a long history of providing investors with a high-yield dividend that grows every quarter. The company has $100.0 million available in credit, and its current quarterly yield is 9.3%.
Furthermore, the company’s outlook remains excellent, which should be good for DKL stock investors.