After reading your post I took a look at the firm's web site. Based on yesterday's closing price it looks like a 23% distribution (on an annualized basis). Awfully tempting. Except that it is a brand new company without a track record and there doesn't seem to be much information available.
Question to anyone: (1) Why is the distribution so high? (2) Is this distribution sustainable or is this some kind of return of capital?
It's a refiner. That should answer your question.
Refiners have always been boom and bust cycles.
Right now is the boom so buying now means buying at top of the cycle which is generally the wrong time to buy. All of these new refiner MLPs NTI, ALDW, CVRR will probably pay high distributions for the next few quarters however the source of the cash cow has been the high spread in oil prices which is already going down a lot (less than $10 Brent-WTI now.
So these high distributions will not last and when they get reduced (these all have variable distribution models), the unit prices will inevitably come down too.
So it's a gamble of seeing how much you can collect in distributions before the inevitable reduction in distributions and unit price occurs.
Not saying you can't make money but they are risky.
On top of the above, both NTI and ALDW are single refineries. Once big explosion at the refinery and you have the potential for massive loss in unit price and complete elimination of distributions for some period. CVRR has 2 refineries, so the risk is a little less concentrated.
there are 62.5 m shares outstanding and with $1.48/sh distribution or $92.5 m distributed.
Just from glancing at just their Q1 financials, they generated 92.7 m cash available for distribution from their sales during the quarter, so does not look like ROC to me
CVRR (another variable pay small cap refiner MLP like ALDW) reported a $1.58 distribution, not as high of a yield but still very high as crack spreads were enormous in Q1. not sure how ALDW could have a higher crack spread but they source some input from the permian if memory serves whereas CVRR gets it from near cushing, so their crack spreads will vary. Maybe ALDW got a higher price for their output as well? (alon, the parent that spun off ALDW, had a refinery outage in the area so there has been upward pressure on gas prices in ALDW's market)- plus ALDW sells their gas through their own branded retail outlets so have no middleman to pay, maybe they got a better margin on the product they sell this Q?
just ideas off top of my , not sure about details gotta look into that deeper
in any case ALDW is a variable payout MLP with a single refinery so expect it to be volatile and do not expect the current yield to persist, as crack spreads will probably come back to earth at some point once better takeaway infrastructure reduces bottlenecks pressuring local oil prices versus benchmark