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Summary

  • CVRR’s unit price is the lowest of the quarter.
  • CVRR will announce their next distribution in mid-August and we assess near $1 per unit.
  • No effect on the distribution from the public sale of 6.5 million common units.
  • Two investment methods that will earn you a double-digit return on your investment.

CVR Refining, LP (NYSE:CVRR) unit price is at the low point in the quarterly cycle and with the distribution announcement and ex-dividend date in mid-August, this is a great opportunity to add to your portfolio.

On June 25, 2014, CVR Refining, LP announced the pricing of its public offering of 6,500,000 common units representing limited partner interests ("Common Units") at the public offering price of $26.07 per Common Unit:

We and CVR Refining Holdings have granted the underwriters an option to purchase up to an aggregate additional 975,000 Common Units from CVR Refining at the public offering price. The offering is expected to close on June 30, 2014, subject to customary closing conditions.

On June 30, 2014, CVR Refining announced the closing of its public offering of 6,500,000 common units representing limited partner interests ("Common Units"):

CVR Refining and CVR Refining Holdings, LLC ("CVR Refining Holdings") have granted the underwriters an option to purchase up to an aggregate additional 975,000 Common Units at a price of $26.07 per Common Unit.

CVR Refining intends to use the net proceeds from the offering, including any proceeds from the underwriters' option to purchase additional Common Units, to redeem from CVR Refining Holdings, LLC ("CVR Refining Holdings") a number of Common Units equal to the number of Common Units sold in the offering. CVR Refining will not receive any proceeds from the sale of Common Units by CVR Refining Holdings. Accordingly, the offering will not change the number of Common Units outstanding.

Immediately before the offering, CVR Refining Holdings directly or indirectly owned a total of 104,790,764 Common Units, representing an approximate 71 percent limited partner interest in CVR Refining. Following the offering, CVR Refining Holdings will directly or indirectly own a total of 98,790,764 Common Units, or 98,201,655 Common Units if the underwriters exercise in full their option, representing an approximate 66.9 percent or 66.5 percent limited partner interest in CVR Refining, respectively.

This will not affect your investment, as these shares were already owned by CVR Refining Holdings, which was receiving their 'per unit distribution'. The Holding company sold the shares to private investors, with no change in the total number of common outstanding units, listed at 147.6 million units. CVR Holdings still maintains 66.9% of the units and the controlling interest, but investors can add more shares to your portfolio to capture more of a company that pays a strong distribution each quarter.

CVRR's operations include a complex full coking, medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day operated by Coffeyville Resources Refining & Marketing in Coffeyville, Kansas. They also include a medium complexity crude oil refinery with a rated capacity of 70,000 barrels per calendar day operated by Wynnewood Refining Company in Wynnewood, Oklahoma. CVR Refining's subsidiaries also operate approximately 336 miles of pipelines, more than 150 crude oil transports, a network of strategically located crude oil gathering tank farms, and more than six million barrels of owned and leased crude oil storage capacity.

First quarter 2014 paid a distribution of $0.98 per unit that represented a 15.68% annualized yield. The next distribution should be near the middle of August (not yet announced), and we anticipate distributions near the one dollar mark again. Last quarter, the stock price rose to a high of $28.55 just before the ex-dividend date and soon retreated below $25. We can expect another run up toward $28 in August, 2014.

We see the investment opportunity in this company through two methods. The first is a buy and hold, as the company will continue to pay a strong double-digit distribution each quarter. The company has a strong market and long-term operation plan. If you choose to reinvest, the distribution pays after the unit price has dropped from the high, allowing you to buy more units at a lower price. If you take the cash, it can provide a quarterly cash flow.

The second method can be more rewarding, but takes your effort to monitor the ex-dividend date. Buying the unit after the ex-dividend date (usually a week to a month after) is the low point in the cycle, and watch the unit price build to just prior to the ex-dividend date. For an example, I will use last quarter's pricing of CVRR. CVRR unit price was $22.17 on the close of February 26, 2014, the ex-dividend date for Q4 2013. The next day it opened at $21. 72 and fell to a low of $20.16 over the next week. Over the next 90 days, the stock price rose to a high of $28.55 on May 6, 2014, whereas the ex-dividend date was May 7th. Selling within the last 5 days prior to the ex-dividend date would have netted above $26, which would have been near a $5 profit per share in 90 days.

During this last quarter the price dropped to a low of $24.75 on June 27th and June 30th, representing a great buy in price. We expect the price to rise near $28 for another great opportunity to earn $3 per share in the next 6 weeks.

CVRR is a recommended buy regardless of which investment method you choose. Holding the units for the strong dividend or buying to get the increase from the unit price rise nearing the ex-dividend date will provide you with a chance to grow your portfolio, or supplement your cash income.

Source: Price Entry Point For CVR Refining For Double-Digit Earnings