9.7%-Yielding Delek Logistics Stock’s Dividend Hiked for 10 Straight Years
DKL Stock a Great Way to Generate Income
Small-cap, high-yield dividend-paying companies that are growing their revenues, delivering high profits, and churning out free cash flow (FCF) aren’t that common, but they’re ideal for income investors who seek higher yields and are willing to take on added risk.
Delek Logistics Partners LP (NYSE:DKL) is one of those companies. Formed in 2012, the Tennessee-based midstream energy company owns, operates, acquires, and constructs crude oil and refined product logistics and marketing assets. (Source: “Corporate Profile,” Delek Logistics Partners LP, last accessed September 18, 2023.)
Delek Logistics is a master limited partnership (MLP). To be deemed an MLP, a company must generate a minimum of 90% of its earnings from minerals and natural resources.
Its assets are company-owned and via joint ventures. Its key geographical areas of interest include the Permian Basin, the Delaware Basin, and other regions in the Gulf Coast area. This includes Texas, Tennessee, Arkansas, and Oklahoma.
Delek Logistics Partners LP operates through four major business segments: Gathering and Processing; Wholesale Marketing and Terminalling; Storage and Transportation; and Investment in Pipeline Joint Ventures.
In June 2022, Delek Logistics acquired 3Bear Delaware Holding – NM, LLC for $624.7 million (excluding customary closing adjustments). 3Bear Delaware Holding has crude oil, natural gas, and water gathering, processing, and disposal operations in the Northern Delaware Basin. (Source: “Delek Logistics Partners, LP Announces Closing of Acquisition From 3Bear Energy,” Delek Logistics Partners LP, June 1, 2022.)
Delek Logistics Stock’s Price Struggling to Find Support
Delek Logistics Partners LP is valued at $1.8 billion.
Its share price has gone down by 36% from its record high of $64.47 in September 2022. The below chart shows DKL stock trading below its 50-day moving average (MA) of $44.14 and its 200-day MA of $47.89 in a bearish death cross pattern.
Delek Logistics stock’s technical picture is bearish, but patient investors can collect its dividends and wait for its share price to rally.
Chart courtesy of StockCharts.com
Delek Logistics Partners LP Is Profitable: Over $1 Billion in Revenues
Delek Logistics’ revenues have risen by double-digit percentages in the last two years, to a record $1.04 billion in 2022. Its revenue increase in 2022 was driven by its acquisition of 3Bear Delaware Holding. The company’s revenue compound annual growth rate (CAGR) for the last five years is a reasonable 12.0%.
Analysts predict that Delek Logistics will report a 2.1% drop in its revenues to $1.01 billion for 2023 but come back with 6.4% growth to $1.08 billion in 2024. (Source: “Delek Logistics Partners, LP (DKL),” Yahoo! Finance, last accessed September 18, 2023.)
(Source: “Delek Logistics Partners L.P.” MarketWatch, last accessed September 18, 2023.)
On the bottom line, Delek Logistics has consistently delivered profits on a generally accepted accounting principles (GAAP) earnings-per-share (EPS) basis. There have been inconsistencies, but the results have been good, and this means the company should have no problems continuing to pay dividends.
Analysts expect that Delek Logistics Partners LP will report a slight earnings decline to $3.58 per diluted share in 2023, prior to staging a strong increase to $4.07 per diluted share in 2024. This translates into a forward price-earnings multiple of about 10.2 times the company’s consensus 2024 EPS estimate. This should provide some cushioning. (Source: Yahoo! Finance, op. cit.)
|Fiscal Year||GAAP-Diluted EPS||Growth|
(Source: MarketWatch, op. cit.)
Delek Logistics Partners LP’s funds statement points to consistent positive FCF. The company’s high FCF allows it to pay dividends and cover its corporate expenses.
|Fiscal Year||FCF (Millions)||Growth|
(Source: MarketWatch, op. cit.)
A risk with Delek Logistics Partners LP is the company’s debt of $1.76 billion on its balance sheet. That debt is largely due to its acquisition of 3Bear Delaware Holding. (Source: Yahoo! Finance, op. cit.)
Energy companies generally carry higher debts than other types of companies, so I’m not that concerned at this time. Delek Logistics’ Piotroski score—an indicator of a company’s balance sheet, profitability, and operational efficiency—is an acceptable 5.0. That’s above the midpoint of the Piotroski score’s range of 1.0 to 9.0.
Dividend Growth Streak at 10 Years
Delek Logistics Partners LP’s most recent quarterly dividend was $1.035 per share, representing a yield of 9.65% (as of this writing).
DKL stock’s five-year average dividend yield is in line with that figure, at 10.12%. The company’s payout ratio of 111.67% appears to be high, but MLPs tend to have much higher payout ratios than other types of companies. (Source: Yahoo! Finance, op. cit.)
Given Delek Logistics’ expected earnings, its dividends will likely continue rising.
|Dividend Growth Streak||10 Years|
|Dividend Streak||11 Years|
|7-Year Dividend CAGR||9.0%|
|10-Year Average Dividend Yield||13.7%|
|Dividend Coverage Ratio||0.7|
The Lowdown on Delek Logistics Stock
I view Delek Logistics Partners LP’s share-price weakness as a contrarian opportunity, considering the company’s history of steady dividend increases, highlighted by its most recent increase in August.
DKL stock is ideal for aggressive income investors who demand a high dividend yield and the potential for high capital gains.