I consider Tesoro Logistics LP (NYSE:TLLP) a high-quality and conservative MLP worth waiting for. TLLP's recent IPO started trading on April 20th with a price tag of $21-per share. TLLP has a quality parent, Tesoro (NYSE:TSO), and a bright future ahead.
TLLP will operate pipelines, maintain terminal facilities, perform trucking duties, and supply tank storage. These activities are officially lumped into two categories: 1. Terminalling, Transportation and Storage, and 2. Crude Oil Gathering. These functions are often looked upon as mundane and boring functions. For some of us, this is exactly what we seek in companies whom provide regular and growing income flows! As long as TSO is refining products, TLLP will be active in the fee-based business. TLLP receives a fee based upon the function it performs for TSO's refined products.
Tesoro Parent Relationship
TLLP has a very solid parent in TSO. TSO is well known as a successful independent refiner. TSO will be TLLP's general partner and retain incentive distribution rights.
TLLP has long-term contracts in place with TSO. TLLP has a win-win partnership with TSO. TLLP's management team includes some of TSO's senior officers. The two business models complement each other. TLLP and TSO possess a growth initiative which will strengthen TLLP's balance sheet, and provide distribution increases in future years. TSO has the financial flexibility to provide any additional capital for future strategic growth.
Tesoro Logistics LP Distribution Levels
TLLP's quarterly distributions are projected to be .3375-cents per share. This equates to a $1.35-annual distribution per share. Based upon a $23.36 stock price, TLLP is currently providing a 5.77% yield. My projected entry point is at sub-$22.50 to capture a 6%-yield at the bare minimum.
Growth prospects have taken the first step forward. On March 21, TSO confirmed their North Dakota refinery is planned to expand from 58,000 barrels-per-day to 68,000 barrels-per-day. This expansion is expected to be complete by June 30th, 2012. Actions such as these will provide the catalyst and fee structure for TLLP's distributions to increase.
Tesoro Logistics LP Conclusion
My strategy is to wait for TLLP to come back to a $21.25 - $22.50 level. At that time, I will enter into a position. The stock has had a nice run to $23.36. The stock's low was $22.21 on May 5th. Ideally TLLP will bust through the $22.21 and approach its $21 offering price.
TLLP filed their quarterly report on May 26. Business appears to be churning on all cylinders. I look forward to watching this MLP closely and enter into a TLLP position.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TLLP over the next 72 hours.