This recent energy spin-off has a current dividend yield of 14.80%, paid quarterly.
Alon USA Partners LP (ALDW) ?from Energy & Income Advisor
Alon USA Energy (ALJ) owns refineries in Louisiana and California that have a combined nameplate capacity of 144,000 barrels per day. The company spun off its 70,000 barrels-per-day Big Spring refinery in west Texas with the initial public offering of Alon USA Partners LP (ALDW), in which it holds an 81.6% interest.
Price differentials between North American benchmarks and Brent crude oil should continue to fluctuate, though the spread should remain wide relative to pre-2011 norms because of growing domestic production and the federal prohibition on exports. Seasonal refinery turnarounds will widen these spreads.
This pricing environment bodes well for profit margins at Alon USA Energy’s Big Spring location, which processes a mix of discounted WTI-Midland and West Texas Sour and sells its refined products at global prices.
That being said, Alon USA Energy and Alon USA Partners’ profitability will take a hit in the near term because of a major turnaround at the Big Spring that will take place from mid-May to mid-June.
This outage will enable the operator to perform regular maintenance and install about $25 million in upgrades that will boost the facility’s distillates (diesel) production by about 2,000 barrels per day while improving operational efficiency and boosting margins by about $20 million per year.
Unfortunately, this long-run benefit comes at the cost of a short-term decline in throughput; management expects the refinery to average about 46,000 barrels per day in the second quarter, compared to a record 73,300 barrels per day in the first three months of 2014.
But as one of three refineries in the Midland area, Big Spring stands to benefit from surging drilling activity and crude-oil output in the Permian Basin because of the regional oversupply. Units of Alon USA Partners offer a high indicated yield, which assumes that the MLP maintains its most recent distribution for the next 12 months. Based on the refiner’s payouts over the trailing 12 months, the stock has yielded 8.7%.
Alon USA Partners is a new breed of publicly-traded partnership. Unlike traditional partnerships, this V-MLP pays a distribution that varies from quarter to quarter based on its underlying cash flow. Rather than delivering steady distribution growth over the long haul, Alon USA Partners disburses the majority of its cash flow each quarter, but this payout fluctuates with the cyclical and operational factors that drive a refinery’s profitability.
Alon USA Partners LP rates a buy up to $20.00 per unit for investors who understand the risk and can afford to speculate.
Elliott Gue and Roger Conrad, Energy & Income Advisor, www.energyandincomeadvisor.com, 888-960-2759, May 27, 2014
