Why Income Investors May Not Find ALDW’s Yield Attractive
Variable distribution MLP
All the MLPs discussed so far in this series pay regular distributions every quarter. Quarterly distribution income makes MLPs attractive to income investors. In this part, we’ll discuss a variable distribution MLP, Alon USA Partners (ALDW).
Alon USA Partners owns and operates a crude oil refinery. Based on the annualized distributions for the latest quarter, Alon USA Partners is currently trading at a yield of more than 12%. However, like CVR Refining (CVRR), it’s a variable distribution MLP. That means it doesn’t have a regular or minimum quarterly distribution. Its distributions vary each quarter depending on cash flows generated. It distributes all the available cash it generates each quarter.
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This means wide fluctuations in quarterly distribution, which may not appeal to income investors seeking regular income. The above graph shows Alon USA Partners’ per unit distributions over the last ten quarters.
However, Alon USA Partners seems to be performing better than its peers given the challenging environment. For a comparison, read CVRR’s 2Q17 Results Hit by Higher Costs, ALDW Paid Distributions. Alon USA Partners managed to pay distributions throughout the rout in energy prices except for in 1Q16.
Alon USA Partners’ refining margin in 2Q17 was higher compared to the same period in 2016. The margin rose on relatively supportive spreads in 2Q17 compared to the year-ago quarter.
Shai Even, president and CFO of Alon USA Partners, said in the company’s 2Q17 earnings release, “We are encouraged by the production activity we have seen in the Permian Basin and the continued discounts for Midland crudes into the third quarter.” The company expects to generate sufficient cash available for distribution in 3Q17.