Like all investors I love receiving my quarterly dividend checks and I'm always looking for new places to invest them. One of the past places to put cash to work is in the oil pipeline and transportation market here within the U.S.
Indeed, most companies that are active in the sector are formed as partnerships and distribute the majority of their income to investors via cash distributions. That being said, the construction of infrastructure is expensive and many infrastructure partnerships have high levels of debt, which is concerning. With this being the case I set out to find logistics partnerships with low levels of debt and solid distributions. I believe I've found four great picks in Tallgrass Energy Partners LP (NYSE: TEP), NuStar GP Holdings, LLC ( NSH ), World Point Terminals LP (NYSE: WPT), and Western Refining Logistics LP (NYSE: WNRL).
First up is Tallgrass Energy Partners. Tallgrass has been on a roll recently, issuing fourth-quarter results and full-year 2014 guidance that blew past analysts' estimates. For the full-year 2014, including the recent acquisition of Trailblazer, Tallgrass is expecting to report adjusted earnings before interest, taxes, depreciation, and amortization of $87 to $92 million, at the high end of estimates -- that's year-on-year EBITDA growth of 23%. Further, Tallgrass is predicting an annualized distribution of at least $1.51 per unit for 2014, 20% growth on the 2013 distribution. At present levels that's a yield of 4.4% annualized. Management are targeting 1.1x distribution coverage. At the end of 2013, Tallgrass only had a debt-to-equity ratio of .18.
Low debt, high yield
Secondly we have NuStar GP Holdings. NuStar's management is not as upbeat about the future as that of Tallgrass, as the company is hardly driving for growth. Still, the company provides a fairly essential service with approximately 96 million barrels of storage capacity and 8,634 miles of crude oil and refined product pipelines. The company has operations in the United States, Canada, Mexico, the Netherlands, the UK, and Turkey. So, for international diversification, NuStar could be a great choice. Presently, NuStar offers a distribution yield of 6.6%, covered fully by free cash flow. At the end of 2013, NuStar had a debt-to-equity ratio of .07.
New to market
World Point Terminals LP is another, low debt-high yield partnership that looks attractive. World Point only came to market during September of last year and has not yet released fourth quarter results for 2013. However, the company is targeting an annualized distribution of $1.20, or a yield of 5.7% at current levels, of which $0.46 has already been paid during the past six months. Further, since coming to market, World Point is flush with cash, and according to numbers supplied at the end of the third quarter last year the company has no debt, making World Point easily one of the pipeline partnerships with the best balance sheets in the business. Unfortunately, as I have said, due to the relatively new nature of the company, information is hard to find and after the fourth-quarter earnings call on March 27 more info should be available but initial indications imply that World Point has a bright future.
Plenty of room for growth
Finally we have Western Refining Logistics LP. Western was spun off from parent Western Refining at the end of last year and at present the company offers a yield of 3%, the lowest in this piece. However, one of the things l love about Western is the fact that it is simple. Indeed, the company is getting the vast majority of its revenue from two 10-year contracts with Western Refining. Both of these contracts are fee-based agreements, which means there will be no exposure to commodity risk, but we will see stable income used to generate stable distributions for unit-holders. In addition, at the end of 2013 Western had $84 million in cash, mainly proceeds retained from the IPO to fund organic growth projects such as additional crude gathering lines and storage capacity. The partnership has no outstanding debt and has access to a $300 million revolving credit facility primarily to fund future acquisitions.