Buy Northern Tier Energy LP

| About: Northern Tier (NTI)

Now is the right time to buy Northern Tier Energy LP (NYSE:NTI). The price is down and based on 1Q 13's dividend, the offer is too good to pass.

In the market a company stock price will fall just after the Ex-dividend date. Investors bid up the price to take advantage of the double-digit dividend, then after the Ex-dividend date, investors sell to take the profits and the price drops. Northern Tier Energy LP Class A closed on May 21, (Ex-dividend date) at $27.00. It paid $1.23 per quarter dividend for a quarterly yield of 4.55%, or an annual yield of 18.22%. Now that the price has dropped to an opening price on June 3, of $23.75, that would make the annual yield 20.72%. Over the next 2 ½ months the value of the stock will increase, leading to the next dividend. We believe that somewhere in the $23. range is the lowest it will go and expect it to rise over the months leading to the dividend. If you are willing to park your money, getting near 20% rate of return on your money, NTI may not be a bad play.

Here are the stock quotes from May 15 - 31, 2013

Date Open High Low Close
31-May-13 26.2 26.6 26.09 26.30
30-May-13 25.83 26.5 25.8 26.33
29-May-13 25.9 26.04 25.32 25.81
28-May-13 26.65 26.77 25.98 26.07
24-May-13 25.9 26.48 25.65 26.33
23-May-13 25.95 26.27 25.7 26.02
22-May-13 27.07 27.19 26.44 26.54
21-May-13 26.9 27.13 26.72 27.00
20-May-13 26.68 27.05 26.21 26.58
17-May-13 26.78 26.98 26.46 26.52
16-May-13 27.43 27.43 26.57 26.58
15-May-13 26.63 27.68 26.55 27.34
Click to enlarge

In an earlier article about Northern Tier, I reported that it planned to shut its refinery for 25 days to increase production capability. Since then, the company stated that it had increased production and stored sufficient product to continue providing product to its consumers, which would not interrupt cash flow or income during the quarter. I have one initial report stating it restarted the refinery on May 30, 2013, but I can't confirm with a second source. Maybe a reader can help confirm that for us. The company should make an official press release soon after the restart with a new production capability.

Several factors are at work to determine if the company can maintain its excellent dividend. The first would be the loss of income by the company's planned shutdown of the refinery. With the shutdown of the refinery, we could expect a loss of income during this period, however, the company planned for this and was able to produce and store enough product to maintain shipments to customers during this time.

The second factor is during the second quarter, the market price of oil products remained steady and the company should maintain the second-quarter income and cash flow following the first quarter's lead.

Third, back in April 13, the company released a statement in response to the change of government standards for fuel products in FY17. The company's statement was positive as it clearly expressed it would meet all government standards and would not need additional capital investment to meet these requirements. Had the company needed to invest millions of dollars to change operational production methods to accomplish this, it would directly reduce the return of profits to the shareholders. Since no major investment is needed, the shareholders can expect continued profitable quarterly returns.

Another issue from the past is on April 30, 2013, NTI released a notice for public offering of an additional 12,000,000 common units with a target price to the public at $26.28. With the current price below the stated offer price, the underwriter has a challenge to sell the units. Depending on the length of time the offer is open, we do expect the share price to increase as the second quarter draws to a close and the company again offers an excellent dividend. The price of $23.75 today is an excellent price per share based on the impending sale of new stock and the dividend return expected August 13.

There are no negative reports about NTI's operations, cash flow or company problems. All things equal, I never pass up a double-digit return, and one approaching 20% return is a great place to be.

One issue to clarify about NTI is there are two companies that use NTI as their stock symbol. On the Canadian Market, NTI is the symbol for Northcore Technologies Inc. on the Toronto Stock Exchange [TSX]. Please do not confuse it with Northern Tier Energy LP Class A on the New York Stock Exchange [NYSE]. Northcore has some issues it is working through and a possible delisting issue on the Toronto Exchange. Not Northern Tier Energy LP Class A.

Northern Tier Energy LP is an independent downstream energy company with refining, retail and pipeline operations that serves the PADD II region of the United States. Northern Tier Energy operates an 84,500 barrels per stream day (so to be adjusted) with the refinery located in St. Paul Park, Minnesota. Northern Tier Energy also operates 166 convenience stores and supports 70 franchised convenience stores, primarily in Minnesota, and Wisconsin, under the SuperAmerica trademark, and owns a bakery and commissary under the SuperMom's brand. Northern Tier Energy has its headquarters in Ridgefield, Connecticut.

Disclosure: I am long NTI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I plan to increase my holding in NTI, but not within the next 72 hours. Information for this article was collected from multiple news sources, the Company information releases and comments and opinions in the media.