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For me, PetroLogistics LP (NYSE:PDH) was one of the more interesting offerings out of the large group of MLP IPOs launched in 2012. The company has a unique niche, and when I first looked at the stock last year, I thought the company had the potential to drop some seriously large dividend distributions on investors. While the distributions since the IPO have been attractive, the 2013 first quarter payout recently announced by PetroLogistics was more than double any previous distribution.

Note: MLP companies such as Calumet Specialty Products have units and pay distributions. The words stock, shares and dividends may be used here with the understanding that the rules of MLP units apply including the tax consequences of investing in MLP units.

Company Overview

The sole asset of PetroLogistics is a processing plant that produces the petrochemical propylene. Propylene is typically a by-product of natural gas processing or crude oil refining and the refiners choose whether to produce propylene or other products based on the current market price for propylene vs. other production options. Currently, PetroLogistics is the only dedicated producer of this widely used chemical and the plant uses propane as its only feedstock.

Because the production of propylene is optional for refiners, most of the time there is a natural spread between input costs - in this case propane - and the market price for propylene. However, that spread is quite variable, and the quarterly profits for PetroLogistics can swing widely. The company has a policy of full payout of the distributable cash earned each quarter.

Dividend Payment History

PetroLogistics went public one year ago, on Mary 4, 2012, with an initial trading price of $16.50. The share value hit $17 a few times in the first week of trading but since has traded in a range from $10.50 to $16. In the short history, the trend has been to run up prior to the dividend announcement and then dropped towards the lower half of the trading range between dividend payments. Here are the dividend payments to date with the record date:

  • 2012 Q2: Aug. 6: 45 cents per unit, pro-rated to 26 cents for the partial quarter of public trading.
  • 2012 Q3: Nov. 14: 21 cents.
  • 2012 Q4: Feb. 18, 2013: 28 cents.
  • 2013 Q1: May 6: 67 cents.

Investors who picked up shares of PDH before the first distribution have earned a total of $1.42, which works out to a 10%+ yield on the most prevalent share price range over the past year.

Investment Considerations

During the first quarter earnings conference call management noted that propylene hit its highest prices during the first quarter and had since dropped somewhat during the month of April. However from the prices discussed during the call, it appears that a dividend above 30 cents and possibly 40 cents is possible for Q2. Going forward from there, the future gets too foggy to make a prediction.

The PetroLogistics plant will be down for a turn around lasting up to one month in the fourth quarter of this year. A turn around is scheduled every three years. The share price may get really cheap near the end of Q3.

There are big name chemical and energy companies with plants similar to PetroLogistics on the drawing board or under construction. However, it will be 2015 at the earliest before the company has direct competition. In the meantime low natural gas prices and the production of one of the most widely used petrochemicals should allow PDH to produce some level of dividend every quarter. Patient investors will pick up shares when the price is down and celebrate when the occasional outsized dividend such as the $0.67 for the last quarter is paid out.

PDH Chart

PDH data by YCharts

Source: PetroLogistics Pops Dividend: 10% Full-Year Yield Is Possible