Delek Logistics: Strong Income Investment with Growth Potential

The report highlights the consistent distribution growth of Delek Logistics Partners, which has raised its payout for 47 straight quarters. While its coverage ratio is currently beneath target, substantial investments are expected to enhance cash flow, suggesting a promising outlook for investors seeking income.

Date: 16-12-2024

AI Rating: 7

According to the report, Delek Logistics Partners (NYSE: DKL) stands out in an environment where income investments are sought after. Its ability to increase distributions consistently makes it an attractive option for investors. The report indicates that Delek has delivered a remarkable 47 consecutive quarters of payout increases, raising its distribution by 0.9% in October and 5.3% over the past year. This suggests a strong commitment to returning value to shareholders and a reliable income stream.

While the current coverage ratio of Delek stands at 1.1, below the target of 1.3, this is explained largely by recent investments and is anticipated to improve as earnings normalize. It is important to note that a higher coverage ratio indicates a stronger capacity to sustain distributions, thus providing reassurance to investors about potential risks associated with cash availability.

In comparison, Enterprise Products Partners (NYSE: EPD) boasts a higher coverage ratio of 1.7, showcasing its financial strength within the sector. This indicates that while Delek is currently in a tight spot regarding coverage, it has historically operated at better levels, which could return as new projects come to fruition.

The key catalysts for future cash flow growth for Delek include its recent investments, such as the acquisition of H2O Midstream and the Wink-to-Webster pipeline. With these developments, combined with an expectation of normalized earnings, Delek is positioned to maintain its distribution increases, balancing higher risks associated with potentially more volatile cash flows due to market conditions.

Stocks: EPD DKL