Unveiling a High-Yield Dividend Prospect Overlooked by Wall Street

August 21, 2024 12:00 AM PDT | By Team Kalkine Media

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Headlines

- Delek Logistics Partners (NYSE:DKL) is relatively unknown among Wall Street analysts, with minimal coverage and varying opinions.

- The company has delivered 46 consecutive quarterly distribution increases, pushing its yield close to 11%.

- Delek Logistics is focused on strengthening its financial foundation, diversifying revenue streams, and maintaining a strong distribution coverage ratio.

Delek Logistics Partners (DKL) is not widely followed by Wall Street, with only a few analysts providing coverage. Among those who do, there are differing opinions on the company's outlook. Despite this, the company has proven itself to be a consistent performer, particularly when it comes to returning cash to its stakeholders. Recently, Delek Logistics achieved its 46th consecutive quarterly distribution increase, with the nearly 2% raise bringing its yield close to 11%. This substantial income stream is built on a solid and sustainable foundation, with potential for continued growth, making it a notable choice for those seeking income.

Delek Logistics operates in the midstream sector, offering logistics services to its parent company, Delek US Holdings (NYSE:DK), as well as to third-party customers. The company recently extended its agreements with Delek US for up to seven years, enhancing its long-term stability and visibility. Additionally, Delek Logistics is actively diversifying its revenue sources by acquiring and developing assets that cater to third-party customers. Currently, the company derives about half of its earnings from its parent, a figure that is expected to decrease to 36% by the second half of next year as third-party volumes grow.

The company generates sufficient cash flow to comfortably cover its distribution payments, ending the second quarter with a distribution coverage ratio of 1.32 times. This strong coverage allows Delek Logistics to retain additional cash, which it can use to fund expansion efforts and strengthen its balance sheet.

To further solidify its financial position, Delek Logistics has been reducing its leverage ratio, which decreased from 4.89 at the end of 2022 to 3.81 by the end of the second quarter this year. The company has achieved this while continuing to invest in expanding its operations and cash flow. This financial discipline has enabled Delek Logistics to increase its distribution payment by 5.3% over the past year without affecting its coverage ratio, which has remained consistent with last year's level of 1.32 times.

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