Westlake Chemical Partners Stock: 8.3%-Yielder Has Paid 39 Straight Quarterly Dividends
July 11, 2024
Wall Street Remains Bullish on Westlake Chemical Partners
Today’s top income pick is Westlake Chemical Partners stock.
Westlake Chemical Partners LP (NYSE:WLKP) is a limited partnership formed by Westlake Corp (NYSE:WLK) to operate, acquire, and develop production facilities for ethylene, “the world’s most important chemical.”
What exactly is ethylene?
Ethylene is a building block of plastic and other compounds, which are then turned into numerous household and industrial products:
- Polyethylene is used to make food packaging, bottles, bags, and other plastic goods
- Ethylene oxide/ethylene glycol gets woven into polyesters and becomes antifreeze for airplane engines and wings
- Ethylene dichloride transforms into vinyl that’s used in pipes, siding, medical devices, and clothing
- Styrene is a synthetic rubber found in tires and foam insulation
Because of its multitude of uses, ethylene is a leading indicator of economic growth in the manufacturing sector.
Westlake Chemical Partner’s business and operations are conducted through Westlake Chemical OpCo LP, a partnership between Westlake Corp and Westlake Chemical Partners. Westlake Chemical Partners owns a 22.8% interest in OpCo LP. (Source: “About Us,” Westlake Chemical Partners LP, last accessed July 3, 2024.)
Westlake Chemical OpCo’s assets include three ethylene production facilities in Calvert City, Kentucky, and Lake Charles, Louisiana. There, the company converts ethane into ethylene, with an annual capacity of approximately 3.7 billion pounds, and ships the end product along its 200-mile ethylene pipeline.
In addition to its products always being in demand, Westlake Chemical OpCo’s sales agreement with Westlake Chemical Partners is such that 95% of OpCo’s ethylene production is sold to Westlake for a stable cash margin of $0.10 per pound (net of operating costs, maintenance capital expenditures, and reserves for future expenditures).
Solid First-Quarter Results
For the first quarter ended March 31, 2024, Westlake Chemical Partners reported net income of $14.8 million, or $0.42 per unit, which is in line with its first-quarter 2023 net income of $14.9 million and up $0.5 million over the $14.3 million reported in the fourth quarter of 2023. (Source: “Westlake Chemical Partners LP Announces First Quarter 2024 Results,” Westlake Chemical Partners LP, May 1, 2024.)
Cash flows from operating activities amounted to $104.6 million, down from $144.9 million in the same prior-year period and a slight decrease from fourth-quarter-2023 cash flows from operating activities of $107.7 million.
The company’s first-quarter master limited partnership distributable cash flow was $16.9 million, a slight decrease over the $17.6 million recorded in the first quarter of 2023.
Commenting on the first-quarter results, Albert Chao, Westlake Chemical’s president and chief executive officer said, “Our first quarter of 2024 results were consistent with our performance in recent quarters due in large part to the stability provided by our ethylene supply agreement with Westlake.”
Adding, “We are constructive on our outlook for the remainder of 2024 as demand from downstream ethylene derivative products is relatively stable and feedstock and energy costs remain at levels supporting third-party ethylene margin improvement.”
Chao didn’t provide any full-year guidance, but analysts expect the company’s earnings to climb from $1.54 per unit in 2023 to $1.61 per unit in 2024, and grow again in 2025 to $2.02 per unit. A more bullish analyst is calling for 2025 earnings of $2.27 per unit. (Source: “Westlake Chemical Partners LP (WLKP),” Yahoo! Finance, last accessed July 3, 2024.)
Distributes 39th Consecutive Quarterly Distribution
Westlake Chemical OpCo’s sales agreement provides the company with stable cash flow, which helps support Westlake Chemical Partners stock’s quarterly distribution. It also insulates the partnership from commodify price risk to its investment-grade parent, which provides it with flexibility in uncertain economic environments.
As you can see in the chart below, Westlake Chemical Partners had a history of raising its distribution every quarter since going public in late 2014. In fact, prior to COVID-19, it hiked its payout for 21 straight quarters.
In the last quarter of 2014, Westlake Chemical Partners stock paid out $0.1704 per unit. By the first quarter of 2020, the quarterly distribution had soared 176% to $0.4714 per unit. (Source: “Dividends,” Westlake Chemical Partners LP, last accessed July 3, 2024.)
But then the 2020 health crisis hit. On the plus side, Westlake hasn’t lowered or suspended its payout. It just hasn’t raised it.
In May, Westlake Chemical Partners stock paid a quarterly distribution of $0.4714 per unit, or $1.89 on an annual basis, for a current yield of 8.3%; that’s more than double the current inflation rate of 3.2%.
Once the economic outlook becomes more certain, chances are good that Westlake will resume hiking its quarterly distributions.
In the meantime, income investors can take some solace in the company’s rising share price, which is, as of this writing, up 10% year to date and 11.5% year over year.
WKLP stock has lots of room to run, too. Currently trading at $22.77, Westlake Chemical Partners stock still needs to climb 7.5% to hit its April 2022 record high of $24.52.
Wall Street has not provided any guidance on Westlake Chemical Partners stock, but analysts are bullish on both the company’s earnings and its revenue outlook. And that could help spark Westlake Chemical Partners units to fresh highs over the coming quarters.
Chart courtesy of StockCharts.com
The Lowdown on Westlake Chemical Partners Stock
Westlake Chemical Partners LP continues to be 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. And it uses that cash to provide shareholders with a reliable ultra-high dividend.
