Delek Logistics Partners, LP DKL announced that it will increase its quarterly cash distribution by 1% sequentially to 88.5 cents per unit. This new distribution reflects a 9% hike year over year.
Post the quarterly raise in cash distribution rate, the new annualized cash distribution will be $3.52 per unit and the same is payable Feb 12, 2020 to the company’s unit holders of record on Feb 4, 2020.
Delek Logistics Partners has been rewarding its unitholders consistently and increased its quarterly cash distribution 26 consecutive times since its IPO.
Is Distribution Sustainable in the Long Run?
Out of all the multi-year contracts won by the firm, 72% accounts for long-term deals (with tenure greater than three years), ensuring a regular flow of income year after year, thereby assuring more cash distribution in the future. Courtesy of these long-term pacts, the Distributable Cash Flow (DCF) piled up to $121.4 million in the first nine months of 2019, from $83 million in 2016.
The two Joint Venture (JV) Pipeline Projects completed by the firm -- RIO Pipeline, which is a JV between MPLX LP MPLX and Delek Logistics; and Caddo Pipeline, a JV between Delek Logistics and Plains Pipeline LP PAA -- create platforms for future growth with an ability to leverage Permian position.
Another JV pipeline project undertaken by the firm is the Red River Pipeline project with an expected annualized adjusted EBITDA of $13.5-$15.5 million pre expansion and $20-$25 million post expansion in the first half of 2020. This coupled with the construction of Big Spring Gathering system in the Permian Basin helps strengthen the partnership’s financial position. These initiatives bode well for the firm in the long haul with respect to providing financial flexibility for a steady flow of cash distribution.
Shares of Delek Logistics Partners have gained 6% in the past 12 months against the industry’s decline of 6.9%.
Zacks Rank & Key Pick
Delek Logistics Partners currently carries a Zacks Rank #4 (Sell).
A better-ranked stock in the same sector is Covanta Holding Corp. CVA, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Covanta Holding’s long-term (three to five years) earnings growth is projected at 15%. It delivered an average positive earnings surprise of 37.03% in the last four quarters.
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