This year is the abyss of dividends in the oil market. Many expenses have Falling with crude oil prices. At the same time, some of the most powerful companies in the industry have only maintained their current levels without fulfilling their growth promises.
That makes Deli Logistics Partners (New York Stock Exchange: DKL) Stand out because it is one of the few Energy company Continue to increase dividends this year. of MLP Recently announced growth for the 29th consecutive quarter, bringing the already impressive yield to further over 1
Stunning financial indicators support double-digit yields
When the dividend yield rises above 10%, it is usually a signal in the market that it does not believe in the sustainability of the dividend. However, when it comes to Delek Logistics’ dividends, these concerns appear to be unfounded.
First, the company generates a very stable cash flow and is backed by a long-term, fee-based contract that includes a minimum transaction volume commitment. These agreements have laid a solid foundation for its cash flow, which accounts for approximately 70% to 75% of its estimated annual revenue this year. This helps to protect it from fluctuations in energy prices and energy volumes, which will be the case in 2020.
At the same time, Delek Logistics expects to pay by the end of this year at a conservative dividend ratio of 67% to 71% of its cash flow (that is, below its lowest benchmark level). This provides it with a good cushion and allows it to retain some cash to fund expansion.
Finally, the company has a reliable balance sheet. It was heavily in debt at the end of the first quarter,Earnings before interest, taxes, depreciation and amortization The ratio of 4.1 is just close to its 4.0 goal. At the same time, as its earnings continue to grow, it expects that its leverage ratio will fall below that target by the end of the year.
There is enough fuel in the tank
Although Delek Logistics’ solid financial indicators support its current spending levels, three catalysts have provided impetus for this year’s growth:
- At the end of March, the company agreed to acquire the Big Spring collection system in the Permian Basin from its parent company. Deli American Holdings (New York Stock Exchange: DK). It paid $100 million in cash and 5 million ordinary units (worth $45.5 million at the time) to purchase assets that should generate between $30 million and $32 million in annual EBITDA.
- In May of this year, it acquired some truck assets from Delek US Holdings for $48 million in cash. These assets will generate annualized EBITDA of between US$8 million and US$9 million.
- The company and its partners, Plains National Pipeline (New York Stock Exchange: PAA), Is completing the $16 million expansion project of its Red River joint venture. Once completed in the second half of this year, the project will expand Red River’s EBITDA from US$13.5 million to US$15.5 million per year to US$20 million to US$25 million.
The incremental cash flow of these three growth drivers will increase Delek Logistics’ payout ratio from 1.15 in the first quarter to 1.4 to 1.5 at the end of the year. In addition, they will reduce their leverage ratio from 4.1 to below 4.0.
This will give Delek Logistics greater financial flexibility to continue to make investments focused on growth. These future investments may include further investments from Delek US Holdings, third-party transactions or other natural expansions.
The combination of financial strength and visible growth gives Delek Logistics confidence to continue to increase its expenditures. The company currently expects this year’s dividend to increase by 5% over 2019. Since it has achieved 0.6% and 1.1% growth this year, the company is still expected to achieve incremental salary increases in the third and fourth quarters.
Attractive options for seeking income
Delek Logistics Partners continues to keep pace with the times in the energy sector, increasing their expenditures while most other companies reduce their expenditures. Thanks to improved financial conditions and growth drivers, it has the ability to continue to increase expenditures. So it looks like an interesting option Income investor these days.