High-Yielding Buckeye Remains Attractive With Solid Q2 Performance And 3 Growth Catalysts

| About: Buckeye Partners (BPL)

Buckeye Partners (NYSE:BPL) reported another solid quarter performance that saw growth in both revenue and earnings. However, the numbers missed their targets. Despite the slight misses, Buckeye remains strong and attractive for investing as it continues to rally on the trading floor, posting an astounding 55.76% gain year-to-date. This is on top of its lucrative dividend yield of 5.96%.

A quick look at the 2nd-quarter earnings

One of the major highlights of the recent quarter is the strong adjusted EBITDA of $148.5 million, up 24% over the same period of 2012. Diluted earnings per unit also increased by 30% from $0.55 to $0.72 per unit year-over-year. However, this slightly missed the target by $0.07.

Total revenue slightly improved year-over-year from $982.64 million in Q2 2012 to $1 billion. Likewise, this fell short of beating the analyst estimate by $0.23 billion. Despite the few misses, Buckeye's fundamentals remain strong as it continues to benefit from its past growth projects.

Buckeye further reported sufficient cash flow of $106 million, which is enough to support its quarterly distribution of $1.0625 per limited partner unit it simultaneously declared to Class B unitholders of record on August 12. The distribution, however, will not be in the form of cash but equivalent Class B units will be issued to the unitholders instead.

Take note that Buckeye is quite efficient in giving cash distribution. The distribution for this quarter is an increase by 2.4% sequentially, with distribution coverage of 1.02x. The company is consistent in paying a quarterly cash distribution since its inception in 1986.

3 growth catalysts of Buckeye

The Perth Amboy Terminal

One of the major projects of Buckeye is the transformation of the Perth Amboy terminal, where the company has made tremendous progress. The company was able to secure a long-term 1-million barrels of refined product storage contract with a major gasoline blender in New York.

Aside from that, the firm is currently in advanced-stage discussions with several parties for the lease contracts of its available clean product capacity. The company is on track to complete the pipeline connectivity of the Perth Amboy facility to its Linden terminal hub. Once the facility is fully operational, it will pump in additional revenues to the company.

The Chicago Complex crude oil storage construction contract with Midwest Refiner

Another growth opportunity for Buckeye is its Chicago Complex, which is dubbed as the premiere terminalling hub and multi-product storage facility in the Midwest. The complex has an approximate petroleum product storage capacity of 6.5 million barrels. Buckeye was able to come to agreement with the Midwest refiner for the construction of crude oil storage with capacity to store 1.1 million barrels. The said storage facility is projected to be in service by mid-year of 2014.

The Bakken-Western Canadian oilfield crude oil services long-term contract

Another long-term contract that Buckeye was able to secure during the quarter is an agreement for crude oil services using the pipelines of its Western Canadian and Bakken oilfields. The contract involves providing varied services like storage and through-put of crude oil with redeliver options to the refineries on the West Coast, East Coast, and Gulf Coast. This contract is expected to be in service before this year ends, thereby helping the company to sustain its growth for this year and beyond.


While the current upward streak of Buckeye looks good for unitholders who were able to secure excellent positions at the start of the year, new investors can't help but doubt if the company is able to sustain its generally upbeat trend towards the end of the year and in the ensuing years.

However, Buckeye has relatively solid fundamentals, and it has several growth projects ahead. So far, the signals are good and there is no sign of correction yet. Thus, it should go on with its upward ride towards the end of the year. This sentiment is shared by the consensus of analysts in Nasdaq with only two recommendations; they are 'Hold' for existing unitholders, and 'Strong Buy' for new investors. So, in spite of the more than seven-month rally, Buckeye remains an attractive dividend-investing vehicle today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.