NuStar Holdings: Execution Risk In Acquisition Of Navigator Energy Services

The equity markets have been on an absolute tear since the election last fall.

For existing investors, this has been welcome. Swelling account balances and rising net worths have made many investors a great deal richer since the results of the November election were announced.

However, a red-hot stock market poses many problems for investors that are looking to buy more stocks.

Valuation matters, and finding attractively-valued stocks in today’s market is difficult.

Cheap stocks can often be found by looking for companies whose stocks have experienced a meaningful drawdown. NuStar Holdings (NSH) is an example of this. The company’s stock has declined from ~$30 to ~$24 since the beginning of February.

Lower stock prices mean higher dividend yields. NuStar’s dividend yield is currently ~9%, making it a member of the elite and selective group of stocks with 5%+ dividend yields.

As with any high dividend stock, NuStar should be thoroughly investigated to ensure that its dividend payout is sustainable in nature.

This article will analyze the investment prospects of NuStar Holdings in detail.

Business Overview

NuStar Holdings is a publicly traded limited liability company whose primary asset is an ownership stake in NuStar Energy L.P. (NS), a publicly-traded master limited partnership.

More specifically, NuStar Holdings owns the general partner of NuStar Energy along with 11% of the partnership’s outstanding common units.

NuStar Holdings also owns 100% of NuStar Energy’s incentive distribution rights (IDRs). IDRs give the general partner (NuStar Holdings) an increasing proportion of the partnership’s cash flows as it grows, which encourages the entities to drive growth at the partnership level.

Additional details about the corporate structure of NuStar Holdings can be seen below.

NSH Nustar Holdings Two Publicly Traded Companies

Source: NuStar Presentation at the May 2017 MLP Investor Conference, slide 4

Interestingly, 21.0% of NuStar Holdings is owned by William E. Greehey, who is the Chairman of both NuStar Energy and NuStar Holdings.

Mr. Greehey’s 21% stake is worth more than $200 million at today’s prices, which means that the Chairman’s interests are definitely aligned with those of his shareholders.

High levels of insider ownership are a key sign of a shareholder-friendly stock and this ownership should be welcomed by NuStar’s investors.

The Underlying MLP

To understand NuStar Holdings, it is imperative to understand NuStar Energy.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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