Green Plains Partners LP: This 10.5% Yielder Raises Its Payout Every Quarter
A Top Dividend Growth Stock You Likely Haven’t Considered
Despite what mainstream economists have been saying, inflation is actually happening. This means that for income investors, collecting a steady dividend might not be enough. In order to maintain the same standard of living in the long term, income investors need an increasing stream of dividends that can at least match the rate of rising prices.
Looking around, there are plenty of dividend growth stocks. But because everyone wants to own them, the most well-known companies that pay growing dividends have already gotten expensive. And due to the inverse relationship between dividend yield and stock price, these popular dividend growth stocks rarely offer a yield north of five percent. Fortunately, for those that are willing to dig into the not-so-hot areas of the stock market, it’s still possible to find dividend growth stocks with much more substantial yields.
Green Plains Partners LP (NASDAQ:GPP) would be a good example. Headquartered in Omaha, Nebraska, Green Plains Partners is a master limited partnership (MLP). But unlike most MLPs that move and store crude oil and natural gas, Green Plains Partners provides transportation and storage services for ethanol.
Also known as a simple alcohol, ethanol can be found in alcoholic beverages, laundry detergent, and hand sanitizers. And because ethanol burns more cleanly than gasoline and diesel fuel, many countries have started offering ethanol-blended fuel at gas stations.
GPP’s business is quiet simple. It was created by major ethanol producer Green Plains Inc. (NASDAQ:GPRE) to own, operate, develop, and acquire ethanol and fuel storage and transportation assets. The partnership’s midstream asset portfolio consists of 39 ethanol storage facilities at or near Green Plains’ ethanol plants, approximately 3,150 railcars and tracking capabilities, and fuel terminal facilities in seven south-central U.S. states. (Source: “2017 MLPA Investor Conference,” Green Plains Partners LP, last accessed February 15, 2018.)
The business is also quite stable, as it is backed by long-term, fee-based commercial agreements supported by minimum volume or take-or-pay capacity commitments. Therefore, the partnership can generate steady cash flows throughout commodity cycles.
Just take a look at GPP stock’s distribution history and you’ll see what I mean. Green Plains Partners completed its initial public offering in June 2015. Its initial quarterly distribution rate was $0.40 per unit. Since then, the partnership has raised its payout every single quarter. With its current quarterly distribution rate of $0.47 per unit, GPP’s per share payout has grown by 17.5%. (Source: “Green Plains Partners LP Dividend Date & History,” NASDAQ, last accessed February 15, 2018.)
GPP Stock Dividend Growth History
The dividend is also safe. In the fourth quarter of 2017, Green Plains Partners generated $17.58 million in distributable cash flow while declaring $15.31 million of cash distributions. That translated to a coverage ratio of 1.15 times. (Source: “Green Plains Partners Reports Fourth Quarter and Full Year 2017 Financial Results,” Green Plains Partners LP, February 7, 2018.)
In the full year 2017, GPP had a distribution coverage ratio of 1.08 times, which also left a margin of safety.
Despite its impressive distribution growth, GPP stock didn’t really shoot through the roof, meaning income investors can still lock in a decent cash return. Trading at $17.90 per unit, Green Plains Partners LP offers an annual dividend yield of 10.5%.
For investors looking for both current income and dividend growth, GPP stock should be near the top of their watchlists.