Tags: Holly | hefty | dividend | HEP

Holly Energy Offers Hefty Dividend

By    |   Thursday, 29 Dec 2011 03:16 PM

Holly Energy Partners (HEP) is a small but spry player in the master limited partnership (MLP) space. It owns and operates crude oil and refined product pipelines, tankage, terminals, and loading facilities in the West and Midwest. It has about 2,500 miles of pipelines and 6 million barrels of storage. And it pays a hefty dividend.

You can’t argue with the company’s recent performance, which has been buoyed by strong demand for crude and petroleum products. Pipeline volume rose 13 percent and terminal volume 8 percent in the third quarter from a year earlier.

Of course, investors buy MLPs for their dividends, and Holly is shining in that area as well. It has lifted its dividend 22 percent over the past four years and recently yielded 6.7 percent.

Holly Energy was created by a spinoff from refiner Holly Corp. — now HollyFrontier (HFC) — in 2004. HollyFrontier accounts for about 80 percent of Holly Energy’s revenue and Alon (ALJ) accounts for most of the rest.

Almost all of Holly Energy’s contracts last for 10 to 15 years. They have minimum revenue guarantees and rate escalators to protect against inflation. Not only does Holly Energy receive guaranteed revenue from HollyFrontier, but its former parent also drops down assets to the MLP.

Downside

To be sure, there’s a downside to the dependence on HollyFrontier. If that company ever experiences problems, the impact will quickly trickle down to Holly Energy.

The MLP’s net income rose 2 percent to $16.7 million in the third quarter from a year earlier. Revenue gained 6 percent to $49.3 million.

Standard & Poor’s analyst Tanjila Shafi has a four-star buy rating on Holly shares. “Our buy recommendation is based on our outlook for improving refined products volumes and potential dropdowns from the general partner (HollyFrontier),” the analyst writes. Shafi is impressed with Holly Energy’s long-term contracts and revenue guarantees.

The company next reports earnings Feb. 15

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Holly Energy Partners (HEP) is a small but spry player in the master limited partnership (MLP) space. It owns and operates crude oil and refined product pipelines, tankage, terminals, and loading facilities in the West and Midwest. It has about 2,500 miles of pipelines and...
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2011-16-29
Thursday, 29 Dec 2011 03:16 PM
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