A High-Yield Stock That’s Actually Worth Considering
The mainstream media rarely mentions this “storage depot” stock. But, for income investors, the company’s generous payout could go a long way toward boosting the return of a dividend portfolio.
I’m talking about Blueknight Energy Partners L.P. (NASDAQ:BKEP), a master limited partnership (MLP) headquartered in Oklahoma City.
Blueknight is a “storage depot” stock. It runs the largest independently owned asphalt terminal network in the country, with 54 terminals across 26 states capable of storing 9.6 million barrels of asphalt and residual fuel. The partnership also provides terminal and storage services for crude oil and related refined products.
Product terminal services is by far the partnership’s biggest segment. Last year, it accounted for 92.6% of Blueknight’s total operating margin. (Source: “Investor Presentation,” Blueknight Energy Partners L.P., last accessed October 11, 2017.)
Storing crude oil and liquid asphalt may not sound like an exciting business, but it offers a level of stability that’s rarely seen in the energy sector. At Blueknight, 88.4% of its crude oil terminal services and 83.4% of its asphalt terminal services are through contracted take-or-pay fixed fee agreements. In other words, clients either pay the partnership a fee to use its storage and terminal service, or they don’t use the service but still pay a fee specified in the contract. This allows Blueknight to generate a predictable stream of cash flow.
The partnership’s business also has another feature that’s rarely seen in the energy sector: durability. With commodity prices being volatile, energy companies could experience huge ups and downs in their revenue and income in a matter of months. But, for Blueknight, the business could be much more durable due to the terms of the take-or-pay contracts. In its asphalt terminal services segment, for instance, the average contract life is usually between five and 10 years.
Also Read:
Everything You Need to Know Before Investing in MLP Funds
With a business that’s capable of generating stable and durable cash flows, Blueknight can afford to pay generous dividends. Right now, the partnership has a quarterly distribution rate of $0.145 per common unit. At today’s price, that translates to an annual yield of 9.83%.
Of course, with a yield like this, you might be wondering whether the partnership is paying too much. So, let’s take a look at its financials.
In the second quarter of 2017, Blueknight generated total revenue of $43.9 million, which is a slight improvement from the $43.4 million earned in the year-ago period. Distributable cash flow, a critical measure of an MLP’s performance, grew 38% year-over-year to $12.7 million. (Source: “Blueknight Announces Second Quarter 2017 Results,” Blueknight Energy Partners L.P., August 1, 2017.)
In particular, the amount of cash that the partnership generated was more than enough to cover the distributions on both its preferred units and common units during this period.
Final Thoughts on This High-Yield Stock
At the end of the day, keep in mind that MLPs are required by law to distribute most of their profits to investors in the form of dividends. With this mandatory distribution requirement, and a durable terminal business, this “storage depot” stock deserves a spot on every income investor’s watchlist.