Westlake Chemical Partners LP: 8%-Yielder Trading Near Record Levels
May 21, 2025
Could WLKP Units Have 20%+ Upside?
Today’s income pick in the spotlight is Westlake Chemical Partners LP (NYSE:WLKP).
One sector that often gets unjustly overlooked is basic materials. But, without this sector, you wouldn’t really have anything; it’s the beginning of the supply chain and it’s made up of basic materials that create finished goods.
The basic materials sector is essentially made up of companies engaged in the discovery, extraction, and processing of raw materials. This includes mining, forestry, and chemical production. One unit in this sector that recently hit a record high, and is also home to a reliable, high-yield quarterly distribution, is Westlake Chemical Partners LP. It’s a limited partnership formed by Westlake Corp (NYSE:WLK) to operate, acquire, and develop production facilities for the “world’s most important chemical”—ethylene.
Ethylene is a building block of plastic and other compounds, which are then turned into numerous household and industrial products, such as:
- Polyethylene, which is a component in food packaging, bottles, bags, and other plastic goods;
- Ethylene oxide/ethylene glycol, which is weaved into polyesters and is the key ingredient in antifreeze for airplane engines and wings;
- Ethylene dichloride, which transforms into vinyl that’s used in pipes, siding, medical devices, and clothing; and
- Styrene, which is a synthetic rubber found in tires and foam insulation.
Westlake Chemical Partners LP’s business and operations are conducted through Westlake Chemical OpCo LP, a partnership between Westlake Corp and Westlake Chemical Partners. Westlake Chemicals owns a 22.8% interest in OpCo. (Source: “About Us,” Westlake Chemical Partners LP, last accessed May 8, 2025.)
Westlake Chemical OpCo’s assets include three ethylene production facilities in Calvert City, Kentucky and Lake Charles, Louisiana. Here, the company converts ethane into ethylene, with an annual capacity of approximately 3.7 billion pounds that it ships along its 200-mile ethylene pipeline.
In addition to the company’s products always being in demand, Westlake Chemical OpCo’s sales agreement with Westlake Corp is such that 95% of OpCo’s ethylene production is sold to Westlake for a stable cash margin of $0.10 per pound. This helps provide it with stable, fee-based cash flow.
Turnaround at Ethylene Facility Complete
For the first quarter ended March 31, 2025, Westlake reported net income of $4.9 million, or $0.14 per unit, down from first-quarter 2024 net income of $14.8 million. (Source: “Westlake Chemical Partners LP Announces First Quarter 2025 Results,” Westlake Chemical Partners LP, May 2, 2025.)
Cash flow from operating activities in the first quarter of 2025 was $45.8 million, down from $104.5 million in the same prior-year period. For the three months ended March 31, 2025, Westlake Chemical Partners’ distributable cash flow was $4.7 million, down from $16.8 million in the first quarter of 2024.
The lower net income, cash flows from operations, and distributable cash flow were due primarily to lower production and sales volume as a result of the planned turnaround at its Petro 1 ethylene facility in Lake Charles, Louisiana.
The turnaround began at the end of January, as expected, and extended into early April. Importantly, Petro 1 returned to full operating rates in April, operating well ever since.
Commenting on the turnaround, Jean-Marc Gibson, Westlake’s president and chief executive officer, said, “The achievement to go over 8 years between turnarounds is a significant milestone and highlights our strong operating and manufacturing culture. With the Petro 1 turnaround behind us, and no further turnarounds planned for several years, we expect our distributable cash flow and coverage ratio to return to our strong historical levels in coming quarters.”
Looking ahead: after Westlake Chemical Partners LP reported $1.77 per share in 2024, analysts expect the partnership to report full-year earnings of $1.50 per share in 2025, climbing to $2.07 per share in 2026. There is a high estimate for 2026 of $2.32 per share. (Source: “Westlake Chemical Partners LP (WLKP),” Yahoo! Finance, last accessed May 8, 2025.)
43rd Consecutive Quarterly Distribution Declared
Westlake Chemical OpCo LP’s sales agreement provides it with a stable cash flow, which helps support its quarterly distribution. The agreement also insulates the partnership from commodity price risk to its investment-grade parent, which provides it flexibility in uncertain economic environments.
Income investors should be happy to hear that, to maintain its status as a partnership, Westlake must return at least 90% of its income to unitholders in the form of a dividend. This has resulted in a reliable quarterly distribution. (Source: “Dividends,” Westlake Chemical Partners LP, last accessed May 8, 2025.)
On April 30, the board of Westlake Chemical’s general partner declared a quarterly distribution of $0.4714 per unit, or $1.89 on an annual basis, for a forward distribution yield of approximately nine percent.
This is the 43rd quarterly distribution announced by the partnership since its initial public offering.
Could WLKP Units Go Up 22%?
It’s one thing to find a high-yield dividend stock with great upside; it’s another to find one that is also trading at record levels. WLKP units have been on a pretty solid run, trading up 6.5% over the last six months, rising 0.5% year to date and almost 11% on an annual basis.
On February 24, WLKP units hit a record high of $25.04. They tumbled in early April, along with the rest of the stock market, on concerns about a global trade war, but they rebounded quickly. WLKP continues to trade near February’s record high, at around $22.89 per unit.
Again, WLKP units have done well, besting what the S&P 500 has done over the last year. And their outlook remains solid, with Wall Street analysts providing a 12-month share price target range of $25.67 to $28.00 per share. This points to potential gains of 12% to 22%.
Chart courtesy of StockCharts.com
The Lowdown on Westlake Chemical Partners LP
Westlake Chemical Partners LP is a leader in a lucrative niche industry. Thanks to the long-term strength of its market position and the protective provisions of its sales agreement, Westlake Chemical Partners is able to report stable, fee-based cash flow.
While its first-quarter numbers were underwhelming, this was due in large part to lower production and sales volume from a planned turnaround at one of its ethylene facilities in Lake Charles, Louisiana.
The turnaround is complete and no further interruptions are expected for several years. As a result, management expects its distributable cash flow and coverage ratio to return to strong historical levels in coming quarters.
This could help energize its units and could also result in an increase to its quarterly payout.
