Earlier this year, PBF Logistics L.P. (PBFX -1.32%) announced a bold multiyear expansion strategy that would provide it with the fuel necessary to continue increasing its already generous distribution, which currently yields 9.6%. While the initial announcement was a bit light on the details, the company started filling them in this week by acquiring several growth-focused assets. With that purchase, the company's vision to continue providing investors with a growing income stream became a bit clearer, making it an even more interesting option for income-seeking investors to consider.
PBF Logistics 101
In early 2014, the nation's fifth largest independent refiner, PBF Energy (PBF -2.77%), joined many of its peers in creating a master limited partnership (MLP) to acquire and operate its logistics assets by forming PBF Logistics. Since that time, PBF Energy has expanded its MLP via a steady diet of dropdown transactions, which it supplemented with third-party acquisitions and organic expansions. This trio of growth drivers has enabled PBF Logistics to increase its distribution 13 times since going public, boosting it at about a 15% compound annual rate over that time frame.
That payout is surprisingly well-supported considering that the yield is closing in on double digits. Last year, PBF Logistics covered it with cash flow by a very healthy 1.34 times, which was well above its 1.15 target and the even lower comfort level of most other MLPs. The company further supports that payout by getting more than 90% of its revenue from stable long-term contracts and keeping its debt-to-EBITDA ratio below 4, which is a comfortable level for an MLP. Those numbers increase the likelihood that PBF Logistics can sustain its current payout rate over the long term.
Taking the next step in its growth journey
While PBF Logistics could sit back and continue paying out its current high distribution rate to investors, it has chosen to actively seek out ways to expand that income stream. That drive led it to unveil a four-year growth plan that would see it increase EBITDA by more than $100 million. For a company that produced $152.1 million in EBITDA last year, that's a significant increase.
PBF Logistics has taken its next step toward achieving that high-octane growth: multiple agreements to acquire and build new assets. The company announced it will invest $125.4 million to purchase a terminal from a third party and several assets from PBF Energy, as well as fund two growth projects that will support its parent's refining operations. Many of the operating assets PBF Logistics acquired are currently underutilized, which provides new avenues for growth. Overall, these initiatives should add $18.1 million to its bottom line, giving it an excellent start on its $100 million target.
Even with this investment, PBF Logistics will keep its leverage ratio below 3.7. That leaves the company with plenty of spare debt capacity before it hits its leverage target. Add that to the excess cash flow the company will retain even after paying its growing distribution, and PBF Logistics has ample financial flexibility to make additional acquisitions or fund new expansions so that it can achieve its growth goal.
A two-for-one special
PBF Logistics has become quite a compelling option for income-seekers. It's not often that investors will find a company that offers both an exceptionally lucrative current income stream, backed by strong financials, and high-octane growth potential. That combination of factors makes it an option that dividend investors will want to consider.