NuStar Energy’s Yield and Distribution Cut



NuStar’s yield

In February 2018, NuStar Energy (NS) announced a 45% distribution cut, effective in 1Q18. Considering the expected distribution of $0.60 per share, the company would yield ~11.7% at its current price. It also announced a merger with NuStar GP Holdings (NSH). The merger is expected to lower NuStar Energy’s cost of capital, attract a broader investor base, increase transparency through a simplified structure, and reduce administrative costs.

The merger will eliminate NuStar GP Holdings’ incentive distribution rights in NS. NuStar GP Holdings will cease to trade as a separate entity after the merger. The merger is expected to be completed in 2Q18.

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Challenges for MLPs

Concerning the current challenges facing MLPs, Brad Barron, president and CEO of NuStar Energy, said, “A fundamental shift has occurred in the makeup of the investor base for MLPs, which has tightened MLP equity markets and access to equity to finance important capital projects needed to grow and increase long-term unitholder value.”

NuStar Energy stock has fallen 35% year-to-date. The Alerian MLP ETF (AMLP) has fallen 11% year-to-date.

Analyst recommendations for NS

Of the analysts surveyed by Reuters, 90% of them have rated NuStar Energy a “hold,” and 10% have rated it a “buy.” The mean price target for NuStar Energy is $27.40. The stock is trading at $20.24. If NS attains its mean price target in a year, it would mean an upside of 36%.

Next, let’s take a look at the reasons for CVR Refining’s (CVRR) high yield.


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