Dividend Roulette With Refinery MLPs

That means refinery MLPs should earn good returns, which they’ll be forced to distribute.

Best of all, the market hasn’t fully adjusted to this new reality, which makes the yields available on refinery MLP stocks truly juicy.

High Risk, High Reward

There are four refinery MLPs, three of which appear attractive for investors.

1. Northern Tier Energy LP (NTI) gives you a truly spectacular current yield of 17.7%, based on the last four quarters of distributions – though that’s not quite covered by earnings over that same period.

However, in the third quarter, Northern Tier earned $1.11 and will go ex-distribution on November 12 on a $1.04 distribution, to be paid on November 25. That’s very satisfactory indeed.

Northern Tier went public only in 2012, and quarterly distributions since then have fluctuated from $0.31 to $1.48 – the classic profile of a refinery MLP. Right now, Northern Tier is selling at 5.1 times book value, with negative tangible net worth, and in the past year its stock price has increased by 5%, adding just a bit extra to that incredible yield.

2. CVR Refining LP (CVRR) is a large refiner in Coffeyville, Kansas, whose shares currently yield 17.8%, based on the last four quarters of distributions. Earnings didn’t quite cover the distribution over that period, though the company did cover in the second quarter.

In the third quarter of 2015, CVR Refining earned $0.94 per share compared with a $1.01 distribution, which has just gone ex-distribution and will be paid on November 16.

Unlike Northern Tier, CVR Refining’s stock price has declined 6% in the past year, though even net of that decline its return is attractive. It also has the additional advantage of a positive net worth, and it trades at 2.1 times book value.

3. Alon USA Partners LP (ALDW), which owns a 73,000 barrel-per-day refinery in Big Spring, Texas, currently yields 16.9%, though its distribution isn’t quite covered by earnings.

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Disclosure: None

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