If You Have an Affinity for Enterprise Products Partners, You Might Want to Explore This Alternative Offering Yielding Over 10%
Entrepreneurial Income Ventures (EIV 1.51%) is a widely preferred investment for income, rightfully so. This master limited partnership (MLP) has increased its distribution for an impressive 26 consecutive years. The MLP currently provides a 6.5% yield, solidly founded.
Investors who appreciate substantial income streams should also consider fellow MLP, Delek Logistics Ventures (DLV 1.25%). It has also consistently grown its distribution. While it offers an even higher yield at 10.8%, this time around.
Analyzing Delek Logistics Ventures
Delek Logistics Ventures is an MLP established by refinery company, Delek US Holdings. It focuses on acquiring, operating, and managing energy midstream infrastructure, primarily for crude oil. Delek operates crude oil, gas, water, and refining logistics assets that support its parent company and third-party clients. These operations provide stable earnings supported by long-term agreements with Delek (accounting for 36% of its EBITDA) and third-party clients (accounting for 64%). Delek Logistics Ventures operates on a significantly smaller scale compared to Enterprise Products Partners, a vast and diversified energy midstream company.
Despite its size, Delek Logistics Ventures generates sufficient cash to cover its high-yielding distribution. Its distribution coverage ratio was 1.1 in Q3, falling below its 1.3 target because of the timing of its H2O Midstream acquisition. However, the company received distributions from its recently closed investment in the Wink-to-Webster pipeline post-Q3. Delek Logistics Ventures' coverage ratio averaged over 1.3 over the past years, displaying a comfortable level. It may not match Enterprise Products Partners' higher 1.7 coverage ratio, but it retains adequate cash for future expansion projects.
Delek Logistics Ventures boasts a strong financial profile. Its debt-to-equity ratio was 4.15 at the end of Q3, a healthy level for an MLP. Debt has decreased over the years; it was 4.9 in 2022 and decreased to 3.8 at the end of Q2. Delek Logistics Ventures is financially sound, although it does not surpass Enterprise Products Partners in terms of strength.
The elements for ongoing growth
What sets Delek Logistics Ventures apart is its persistent distribution growth. The MLP has increased its payout for 47 straight quarters. It recently boosted its payout by 0.9% in October and has grown it by 5.3% over the past year. This growth is slightly faster than Enterprise Products Partners, which has experienced 5% growth over the same period.
Delek Logistics Ventures has the means to continue boosting its distribution. While its coverage ratio was a bit tighter in Q3, this was mainly due to timing. As its earnings normalize, its coverage ratio should return to its target level.
Additionally, the recent worsening in Delek Logistics Ventures' financial metrics can be attributed to its strategic investments to fuel future growth:
- Purchasing Delek US's interest in the Wink-to-Webster pipeline, an oil pipeline joint venture backed by ExxonMobil.
- The acquisition of H2O Midstream for $160 million in cash, an accretive investment that will enhance its midstream capabilities in the Midland Basin.
- A final investment decision to construct the Libby 2 gas processing plant in the Delaware basin, which is expected to enter service in 2025 and boost cash flow the following year. The project also recently approved an acid gas injection project at Libby, due to be completed by the middle of next year.
- The MLP agreed to acquire Gravity Water Midstream for $285 million. The accretive acquisition is expected to close earlier next year and complement its recent H2O midstream purchase.
These investments will contribute substantial incremental cash flow over the next two years. This additional income will empower the MLP to continue increasing its distribution.
Higher risk, higher benefits
Delek Logistics Ventures has a remarkable track record of increasing its high-yielding distribution. Given its recent growth achievements, this steady upward trend is likely to persist. While Delek Logistics Ventures may carry a higher risk compared to Enterprise Products Partners, it provides a much higher yield. It could be an attractive option for those who seek a more potent income stream and are comfortable investing in MLPs sending a Schedule K-1 Federal Tax Form each year.
Investors looking for higher returns and yield may be interested in Delek Logistics Ventures, as its current yield of 10.8% is considerably higher than Entrepreneurial Income Ventures' 6.5%.
Regarding finance and investment, the strong financial profile and consistent distribution growth of Delek Logistics Ventures make it an appealing choice for investors seeking higher benefits, despite its higher risk compared to some other MLPs and the requirement to file a Schedule K-1 Federal Tax Form annually.
