My favorite two income stocks for 2013 have yields above 20%. I do not believe 20% yields are sustainable for multiple years. However, I do know that the wind is at their backs. Both are refinery master limited partnerships ((MLP)), benefiting on the positive crack yield spreads. I already own Northern Tier Energy LP (NTI) and Alon USA Partners, LP (ALDW). I am am confident in these stocks and plan on buying more.
Northern Tier Energy LP Distributions
I discussed Northern Tier Energy on December 2nd. I am more confident in the business model now than I was on December 2nd. Northern Tier Energy crack yield spreads will provide an approximate 4th quarter distribution above $2.00 per unit.
The bottom line is the company obtains inexpensive crude. The crude is derived from Canadian fields and Bakken oil crude production. Northern Tier Energy can sell the refined products at Brent crude oil prices.
Northern Tier went ex-dividend on November 19th for $1.48-per unit. The company should pay $2.00-per unit for the December 31st quarter. This is based upon Bakken versus West Texas Intermediate oil prices and Brent oil spreads. The crack yield spreads benefit Northern Tier unit investors. Northern Tier profits are based upon low Western Canadian Select oil spreads, and all input costs. The cheaper input costs provide higher net yield profit spreads to Northern Tier investors.
Northern Tier Energy has low cost inputs. The MLP benefits by refining this product in extremely profitable profit margins. If you want income, then Northern Tier Energy is the place to be right now.
Alon USA Partners, LP Distributions
I discussed Alon USA Partners, LP on December 6th. Alon USA Partners, LP continues to benefit from strong refinery profit margins. The initial SEC S1 filing stated an expectation of $5.20 distribution per unit.
Alon USA Partners Summary
Per the prospectus, Alon USA Partners could benefit by positive variances in the primary input West Texas Sour ((WTS))/West Texas Intermediate ((WTI)) versus Brent crude prices. These variances have been positive for Alon USA Partners in recent times. This should provide higher net distributions to current unit holders.
The bottom line is Alon USA Partners units have increased in value due to higher distribution expectations.
There are 1,000 analysts who cover the Dow Jones 30 stocks. My job is to find securities that do not reflect the current valuations. If buying GE were a guarantee to financial independence, then everyone would be buying GE.
I believe Alon USA Partners, LP and Northern Tier Energy offer the best of both worlds. The net quarterly distributions should be higher than the prospectuses indicate. The units should reflect the higher anticipated income. This will result in a higher unit share and a higher expected quarterly distribution. I want to be present when these wealth creators appear on page 1 of the Wall Street Journal.