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Delek US Holdings: 7th for High Valuation, Low Dividend Yield

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Apr. 5 2018, Updated 7:33 a.m. ET

DK’s dividend yield

Delek US Holdings (DK) is seventh on our list of seven downstream dividend-yielding stocks that we’re covering in this series. DK is an American downstream company with refining and logistics business segments. The company has the lowest market cap (capitalization) of $3 billion among our seven companies.

DK has a current dividend yield of 2%. In 1Q18, it made a dividend payment of $0.20 per share, announced on February 27, 2018, and paid on March 26, 2018. DK has paid dividends for the past three years. In that period, despite refining margin volatility, its dividends have risen. Three years ago, it made a dividend payment of $0.15 per share on March 24, 2015. PBF Energy’s (PBF) dividend payments have remained stable in the past three years.

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Valuations

Delek trades at a forward PE (price-to-earnings) ratio of 16.1x, the highest compared to the forward PE ratios of other refiners. That’s because DK’s estimated earnings are recovering from losses. So DK stock continues to trade at a high forward PE ratio with the hope of normalizing earnings in the future.

DK has already started seeing improvements in its financial position. It reported positive EPS (earnings per share) of $2.60 in 4Q17 compared to consistent adjusted losses for the past several quarters. Even on an adjusted basis, DK’s EPS was positive at $0.50 in 4Q17. It saw $89 million of synergies from the Alon USA Energy integration in 2017. DK expects to achieve annual synergies of $105 million–$120 million in 2018–2019 from the acquisition.

Alon’s logistics assets could be dropped down to Delek Logistics Partners (DKL), which could strengthen DK’s midstream MLP. With the acquisition, DK has expanded its footprint in the Permian Basin. It has provided 200,000 bpd (barrels per day) for its crude oil access system in the basin. DK is expecting growth from its acquisition of Alon USA Energy.

With recovering financials and rising synergies, Delek is seeing higher valuations.

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