Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week's selection.
This week, I want to take a closer look at a sector recently hit hard by Hurricane Sandy -- oil and gas infrastructure -- and highlight why Sunoco Logistics Partners (NYSE:SXL) has a payout you can count on!
It may seem counterintuitive to look at a midstream and downstream company like Sunoco Logistics so recently after Hurricane Sandy with many of its peers still struggling, but I believe you'll see that the company makes sense as a long-term hold regardless of the hiccups that may come to pass.
Refiners across the board are suffering. Despite decent earnings from Philips 66 (NYSE:PSX) and Tesoro (NYSE:ANDV), both companies continue to sink. This has nothing to do with a lack of supply or demand, as the demand for gasoline can best be described as frantic on the East Coast. Instead, a lack of electricity and panic is causing a fuel bottleneck at midstream storage facilities like Sunoco Logistics. Over the long term, however, this is nothing more than a blip in Sunoco's spell of steady growth.
A streaming opportunity
Sunoco Logistics is now owned by Energy Transfer Partners (NYSE:ETP) following the completion of a merger between Energy Transfer and its former parent (and now ETP subsidiary) Sunoco. This merger only further strengthens the partnerships fee-based relationship with Sunoco, which Forbes notes "shields it from competitive pressures in the midstream energy space." Further, Sunoco Logistics also expanded its partnership with MarkWest Energy Partners (UNKNOWN:MWE.DL) last year to ship up to 65,000 barrels of ethane per day to Ontario. Perhaps its biggest advantage has to do with receiving oil predominantly within the U.S. (i.e. in its own backyard). Whereas many refiners pay extra to import oil from overseas, Sunoco Logistics enjoys the luxury of transporting oil from its own backyard which helps boost margins, and dividend payouts.
In Sunoco Logistics Partners' most-recent quarter, it recorded a 37% increase in revenue as pipeline and terminal facility demand rose dramatically. Free cash flow of $166 million was a 57% improvement over the previous year as net income growth of 60% absolutely pulverized Wall Street's estimates. These results all relate back to its highly diversified and well-protected businesses which include transportation, storage, terminal facilities, and crude oil acquisition and marketing.
One amazing dividend
The real allure of Sunoco Logistics Partners, though, is its ridiculous streak of raising its dividend, which extends back 29 quarters and counting.
As you can see from the quarterly payouts above, Sunoco Logistics payout has jumped an incredible 129% since the beginning of 2005 when adjusted for its stock split. Few other companies in the energy space can claim consistent quarterly dividend growth and even fewer can claim dividend growth of 129% since 2005.
As my Foolish colleague Aimee Duffy has explained before, the biggest investments in the energy sector over the next decade are likely to be made in midstream pipeline and storage companies. This means Sunoco Logistics is set up for perhaps even more growth than we've witnessed over the past couple of years. With a 29-quarter streak of rising dividends, a healthy 3.8% yield, and a payout ratio of 49% which leaves room for numerous future quarterly payout increases, I see no reason why income-seeking investors shouldn't salivate with excitement over Sunoco Logistics Partners.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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