Because there are hundreds of publicly traded energy companies, it’s easy to overlook those that aren’t well-known or don’t stand out.
Of them energy stocks who have amassed excellent track records that have largely gone unnoticed by investors are Delek logistics partners (DKL -5.05%) and Pembina pipeline (PBA -1.23%). Here’s why investors won’t want to miss what they bring to the table.
Delek Logistics Partners is a rather small Master Limited Partnership (MLP) formed by a relatively unknown refining company in Delek US Holdings (DK -0.04%). Since it flew under the radar of most investors, they missed its impressive growth record. The MLP has increased its distribution to investors every quarter since its inception in late 2012, bringing the streak to 37 consecutive quarters.
That’s impressive, considering most MLPs have cut payouts at least once in the past decade due to all the volatility in the energy markets. Delek avoided this fate by maintaining a solid financial profile and the support of its parent company. The company ended the first quarter generating enough cash to cover its 1.2x distribution. During that time, it had a conservative leverage ratio of 3.3 times debt to earnings before interest, taxes, depreciation and amortization (EBITDA).
While this past success doesn’t guarantee future results, Delek Logistics seems to have plenty of fuel to keep increasing its payout, which is currently earning a nice 7.9%. The company recently acquired 3Bear Energy, which will increase its near-term cash flow. This agreement should give the company the fuel to increase its payment by 5% this year. Meanwhile, Delek US Holdings still has midstream assets that it could transfer to its MLP in the future to support its continued growth. On top of that, it can complete expansion projects or make additional third-party acquisitions to drive growth. Given its strong financial profile, even after funding the 3Bear deal, MLP has the financial flexibility to continue to grow its operations and distribution in the future.
Pembina Pipeline is a leader pipeline company in Canada. Given its geographic concentration, most investors south of the border have never heard of Pembina. They miss her rock solid monthly dividend, which is currently yielding more than 5%. The Canadian pipeline operator has maintained or increased its dividend every year since 1998, growing it at a compound annual rate of 5% over the past decade.
This high-yield payout is built on a very solid foundation. The company generates very stable revenues, 88% of which come from fixed-price contracts. Meanwhile, Pembina pays just over half of its cash flow in dividends. It also has a strong investment-grade balance sheet, providing additional financial flexibility.
Pembina has a wide range of expansion opportunities to fuel growth in the years to come. It has several pipeline expansions currently under construction that will provide additional revenue when they come online. The company is also constructing a power generation facility to reduce costs and greenhouse gas emissions at one of the facilities. On top of that, it has a long list of projects in development to keep growing in the future.
The company also has an excellent acquisition history. It recently agreed to form a joint venture to merge its processing assets in Western Canada with those held by a global infrastructure fund. The company plans to increase its dividend by 3.6% once it closes this highly accretive deal. With a solid financial profile and a world that still needs a lot of energy, Pembina should be able to continue expanding its operations and its dividend over the next few years.
Income-focused investors will want to know about these energy stocks
Delek Logistics and Pembina Pipeline have quietly rewarded their investors with steadily increasing dividends over the years. Both companies have the financial fortitude and growth prospects to continue to increase these dividends in the future. Income-oriented investors will want to take a closer look at these lesser-known energy stocks.
Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION. The Motley Fool has a disclosure policy.