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Here's Why This Dividend Stock With a 10% Yield Hit New 52-Week Lows Today

By Maxx Chatsko – Dec 14, 2017 at 3:13PM

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Low-volume stocks are susceptible to volatility.

What happened

Shares of Green Plains Partners LP (GPP -0.40%) sank as much as 11.3% Thursday on abnormal trading volume. Well, "abnormal" is relative. That's because the master limited partnership is thinly traded, with an average daily trading volume of just 63,000 shares. Today, however, roughly 1.4 million shares have traded hands after a handful of sizable trades at market open tipped off a frenzy.

The reason for the higher-than-average trading volume? There isn't one. This appears to be an unfortunate case of "sometimes stocks go up, sometimes stocks go down" that shouldn't be too concerning to investors -- but it could be a buying opportunity.

As of 3:28 p.m. EST, the stock had settled to a 6.9% loss.

A train traveling across the open plains.

Image source: Getty Images.

So what

Green Plains Partners LP was formed to handle all of the logistics, transportation, and storage needs of North America's second-largest ethanol producer, Green Plains, which owns 65.5% of the outstanding shares (a large reason for the low daily trading average).

The master limited partnership runs a lucrative fee-based business that owns and leases rail cars for transporting the roughly 1.5 billion gallons per year of corn-based biofuel from its parent's ethanol production facilities to refinery clusters, where the biofuel is blended into the nation's gasoline supply. It also owns fuel storage assets throughout the country.

While the partnership has grown in lockstep with its parent's expanding footprint, there will be a new growth opportunity in 2018. Green Plains Partners LP is expected to purchase the recently completed ethanol export terminal currently co-owned by Green Plains. With the nation's ethanol exports reaching record levels in 2017, it promises to be a solid long-term opportunity to expand the fee-based business. That means the quarterly distributions, currently yielding 11%, should continue to grow from current levels.

Now what

Today's move is a reminder that there are pros and cons to being a master limited partnership majority-owned by another company. On one hand, Green Plains Partners LP has guaranteed, high-margin business from its parent company, which provides a certain level of protection for the distributions. On the other hand, since most shares are locked up by Green Plains, the stock is thinly traded, which can result in volatile days like today.

That said, there's no reason to panic. Most shareholders are probably in Green Plains Partners LP for the distribution, not necessarily share appreciation, so today's move can be brushed off relatively easily. If anything, the upcoming opportunity to expand into direct ownership of ethanol export terminals provides a solid reason to be bullish on the partnership's long-term direction.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Green Plains Partners Stock Quote
Green Plains Partners
$12.58 (-0.40%) $0.05
Green Plains Stock Quote
Green Plains
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