DKL Stock: Bullish, Ultra-High-Yielder Hikes Payout Again
October 4, 2024
Outlook for Delek Logistics Bullish on Record Results
Despite the energy sector facing recent headwinds, one great way for income-starved investors to play the industry is with Delek Logistics Partners LP (NYSE:DKL), a midstream master limited partnership (MLP) with growing revenue, consistent profitability, positive free cash flow (FCF), and a reliably growing dividend. In fact, it’s made 46 consecutive quarterly increases.
Brentwood-Tennessee-based Delek Logistics owns and operates logistics and marketing assets for crude oil and intermediate and refined products in the U.S. (Source: “Investor Update,” Delek Logistics Partners LP, August 6, 2024.)
The partnership operates through four major business segments: Gathering & Processing, Wholesale Marketing and Terminalling, Storage & Transportation, and Pipeline Joint Ventures. Its infrastructure includes 850 miles of crude product transportation pipelines and a 700-mile crude oil gather system.
Delek Logistics’ key areas of interest include the Permian Basin, the Delaware Basin, and other regions in the Gulf Coast area, such as Texas, Tennessee, and Arkansas.
The MLP is always on the lookout for acquisitions to enhance its competitiveness. In June 2022, Delek’s cash flow got a boost when it closed the $624.7-million acquisition of 3Bear Energy’s unit, 3Bear Delaware Holding. The acquisition expanded Delek’s footprint into the Delaware Basin in New Mexico. (Source: “Delek Logistics Partners, LP Announces Closing of Acquisition from 3Bear Energy ,” Delek Logistics Partners LP, June 1, 2022.)
On September 12, 2024, Delek Logistics closed on the $230.0-million acquisition of H20 Midstream, the largest pure-play water midstream company in the Permian Basin, with more than 250 miles of pipeline.
One of the most prolific oil and gas regions in the U.S., H2O Midstream’s water management services strengthen Delek’s ability to meet the growing demand for sustainable and efficient water solutions in oil and gas production. (Source: “Delek Logistics Partners, LP Announces Closing of H20 Midstream Acquisition,” Delek Logistics Partners LP, September 12, 2024.)
Record Second-Quarter Results
For the second quarter ended June 30, Delek Logistics announced that net income increased 29% year over year to $41.1 million, or $0.87 per share. (Source: “Delek Logistics Reports Record Second Quarter 2024 Results,” Delek Logistics Partners LP, August 6, 2024.)
Net cash provided in operating activities jumped 153% to $87.6 million. Distributable cash flow, meanwhile, grew to $67.8 million. Earnings before interest, taxes, depreciation, and amortization (EBITDA) were $102.4 million, compared to $92.8 million in the second quarter of 2023.
Delek Logistics didn’t provide any guidance, but Wall Street analysts expect the company’s full-year earnings to grow from $2.89 per share in 2023 to $3.46 per share in 2024 and rise to $4.06 per share in 2025. (Source: “Delek Logistics Partners, LP (DKL),” Yahoo! Finance, last accessed September 25, 2024.)
46th Consecutive Increase in Quarterly Dividend
Thanks to its strong balance sheet and cash flow, which has increased in three of the last four years, DKL stock is able to provide investors with a reliably growing quarterly dividend.
In July, the MLP’s board approved the 46th consecutive increase in its quarterly distribution to $1.09 per unit, or $4.36 per share on an annualized basis, for a forward yield of 10.02%. (Source: “Delek Logistics Partners, LP Increases Quarterly Cash Distribution to $1.09 per Common Limited Partner Unit,” Delek Logistics Partners LP, July 30, 2024.)
As of this writing (September 25), DKL stock is trading hands at $43.24, with Wall Street analysts providing a 12-month share price target range of $45.00 to $46.00. There’s still room for improvement; DKL stock’s 52-week high is $53.08 and its all-time high is $53.54.
Chart courtesy of StockCharts.com
The Lowdown on DKL Stock
Delek Logistics Partners LP is a financially robust company that is expanding its operations and reporting record results. DKL stock has a long history of returning cash to shareholders, having increased its payout for the last 46 consecutive quarters or 11.5 years.
The company actually targets a five-percent increase in annual distribution. Judging by its record results and strong FCF generation, 2025 could be another year of strong DKL stock price gains and inflation-thumping dividend growth.
