Meet the ‘Masters’ of High Yields: MLPs

Meet the ‘Masters’ of High Yields: MLPs

Master Limited Partnerships, or MLPs, have traditionally been a good source of high-yield securities. enough Master of Limited Partnerships a return of 5% or more, even double-digit returns in some cases. Of course, investors shouldn’t chase the highest yields – some high-yield stocks have weak fundamentals and end up cutting their payouts to investors.

This article will discuss the top three MLPs with high yields and strong payout coverage.

Fill Up on Sunoco

Sunoco (SUN) distributes a range of fuel products through its wholesale and retail business units. The wholesale unit purchases fuel products from refiners and sells those products to its own and independently owned dealers.

Sunoco reported its second quarter earnings last month, showing total revenue of $7.8 billion during the quarter, which was 78% more than the revenue Sunoco generated during the year-ago quarter. Fuel prices rose sharply compared to the previous year’s Covid-affected quarter, boosting revenue. Fuel prices are largely a flow-through item for Sunoco since Sunoco’s costs also increase when fuel prices rise.

The increase in income does not go hand in hand with an increase in earnings of the same amount. Sunoco reported its adjusted earnings before interest, taxes, depreciation and amortization
up 7% year over year, rising to $214 million during the quarter. Sunoco’s distributable cash flows were $159 million during the quarter, which was 10% higher compared to the prior-year quarter, and represented a DCF of $1.87 per share, which easily covered the dividend . For 2022, Sunoco is forecasting EBITDA of approximately $795 million to $835 million, representing growth of approximately 10% vs. 2021.

Sunoco is one of the largest independent fuel distributors, and Sunoco is among the top distributors of Chevron, Exxon, and Valero motor fuel in the rest of the United States. In the wholesale fuel industry, scale is important, as increased scale allows for higher margins and a better negotiating position with suppliers.

Future growth is likely due to the company’s acquisitions. In August 2021, Sunoco agreed to acquire eight refined products terminals from NuStar Energy for $250 million, and those deals are expected to be accredited immediately after closing. Sunoco acquired an additional terminal from Cato, Inc. around the same time. In 2022, Sunoco closed a $190 million acquisition of a processing and terminal facility from Gladieux Partners. Sunoco’s yield is currently 8.2%.

High Energy Cullen

Holly Energy Partners (HEP) is responsible for the transportation and storage of crude oil and refined products. The company operates its own crude oil and petroleum pipelines and storage terminals in 10 US states, including Texas, Nevada and Washington. HEP also has refinery facilities in Utah and Kansas. HEP was founded in 2004 by HF Sinclair (DINO) and generates revenue by charging customers for the transport and storage of petroleum products.

Almost all of HEP’s income is fee-based. As a result, prevailing commodity prices hardly affect these incomes. Instead, they are proportional to the amounts carried and stored by the MLP. These amounts are reliable because they are determined by long-term contracts, creating strict minimums for the MLP’s customers.

In early August, HEP reported financial results for the second quarter of fiscal 2022, showing that distributable cash flow (DCF) grew by 18% compared to last year’s quarter, thanks to higher volumes, resulting from acquisition of Sinclair Transportation.

HEP achieves growth through contractual tariff escalators, which raise the fees it charges its customers over time, and by adding new pipelines. HEP has more than 800 miles of crude oil gathering facilities in the Permian Basin and can continue to leverage its footprint in this area for years to come.

HEP proactively cut its distribution in 2020 due to the pandemic but still offers an attractive yield of 8.2%, with strong distribution coverage. Management has stated that they intend to keep the distribution stable this year. As HEP currently has a distribution coverage ratio of 1.7, we consider the new distribution to be safe. HEP units currently yield 7.5%.

Play Finance: Lazard

Lazard (LAZ) is a unique MLP in that it operates not in the oil and gas sector, but in the financial sector. Lazard Ltd is an international investment advisory company. which traces its history to 1848. The company has two business segments: Financial Advisory and Asset Management. The Financial Advisory business includes M&A, debt restructuring, capital raising and other advisory business. The Asset Management business is approximately 80% equities and focuses primarily on institutional clients.

At the end of Q2 2022, Lazard had approximately $217 billion in assets under management (AUM). Lazard reported Q2 2022 results on July 28, revealing that company-wide operating income decreased (-18%) to $676 million from $821 million and diluted adjusted earnings decreased (-28%) to $0.92 from $1.28 year-on-year on. lower M&A deals and debt restructuring and lower assets under management (AUM). The Financial Council’s operating income was $407 million, a decrease (-14%) from $471 million the previous year.

Lazard was involved in the acquisition of Lagardere by Vivendi, the sale of ReITs Resource to Blackstone, the $20 billion Oi accumulation of fiber assets, the sale of Sierra Oncology to GSK, the sale of Ferro to Prince International, and many other deals.

Lazard’s competitive advantage is derived from its reputation for excellence and integrity, global reach, diversity in asset management, long-term relationships, and ability to advise on complex transactions. The company is often the go-to firm for complex global M&A and restructuring transactions. The company’s reputation allows it to attract top talent, which is important in the consulting business. In particular, its managing directors have over 25 years of experience on average. Lazard units have a current yield of 5.4%.

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