90-Day Dividend Investment Cycle Could Yield Near 20% For Calumet Specialty Products This Quarter

| About: Calumet Specialty (CLMT)


Calumet’s distribution is currently 13% and investors looking for higher returns are likely to buy in. As such, our 90-day dividend cycle will play out.

Crack spread is down this quarter, but Calumet is expected to hold its distribution at $0.685 again, for 11 quarters in a row.

Unit price closed prior to last quarter’s ex-date at $27.68 and now $20.20, with expected rise to $24.00 by next ex-date.

Investor return using our 90-day dividend cycle could yield 18% for this quarter.

There are several master limited partnerships (MLPs) that are coming up on their ex-distribution dates in late January or February. One of the stocks I like coming into this cycle includes Calumet Specialty Products Partners, L.P. (CLMT). I want to describe my 90-day Dividend Cycle and how you can use it, and several issues in the market that concern investors. Then I will highlight the opportunity in Calumet.

Investing in our 90-day Dividend Cycle takes advantage of the changes in the stock price as investors bid up the price as the stock approaches its ex-dividend date. In this case we are talking about a master limited partnership company that has units rather than stocks, and pays a distribution rather than dividends. Historically, this and several other companies we track go through a 90-day cycle that sees the price climb to its high just prior to the ex-distribution date, then drop after the ex-date for 30-45 days, then begin to climb toward its next ex-date. We are now in the last 30-day window climbing toward the next ex-date where the unit price will climb from its current price to a new high.

There is a detailed explanation that drives the MLPs we track and why certain market conditions affect or do not affect the MLPs' profits and returns to investors.

First, refineries are somewhat immune to the changes in the price of crude. As crude prices have dropped from $100 to now in the mid-$30s, refineries continue to profit because regardless of the price at which they buy the crude, they sell for the cost, plus their expenses, plus a profit.

Second, the crack spread actually is a more important factor in the profits of the MLP refineries we track, and as I have been reporting this quarter, the crack spreads have dropped to the lowest over the last 4 quarters. The full numbers are available on the Howard Weil site, but at time of writing on January 5, 2016, the numbers for the Chicago WTI are:


4Q14 $19.93

1Q15 $18.81

2Q15 $21.87

3Q15 $22.29

QTD 15 $15.48

The 4th quarter 2015 (QTD) has the lowest crack spread (by far) that will lower the MLPs' profit margins. That will lower the distribution to investors, and I have included that in our calculations for this quarter.

The third issue, which is a non-issue for MLPs, is the amount of oil being produced above being consumed. The oil being stock-piled in Cushing, OK and around the world does not matter. The price the refineries buy the oil for, plus their costs and profits, are the true factors that are driving MLPs' profitability.

The last major factor is the consumption of oil, which in the U.S. is steady to a slight increase based on a slow growth in the U.S. consumption and lower prices allowing people to take the extra drive due to lower prices. Christmas travel saw record drivers on the roads, attributed to lower gas prices.

All of these factors stabilize the markets and allow us to evaluate and predict the quarter for these MLPs. The company that rates the highest for this quarter's opportunity for an increase in the unit price from now until its ex-date is Calumet Specialty Products Partners, L.P. (CLMT)

Calumet Specialty Products is a master limited partnership and a leading independent producer of high-quality, specialty hydrocarbon products in North America. Calumet processes crude oil and other feed stocks into customized lubricating oils, solvents and waxes used in consumer, industrial and automotive products; produces fuel products including gasoline, diesel and jet fuel; and provides oilfield services and products to customers throughout the United States. Calumet is based in Indianapolis, Indiana and has 14 manufacturing facilities located in northwest Louisiana, northwest Wisconsin, northern Montana, western Pennsylvania, Texas, New Jersey, Oklahoma, eastern Missouri and North Dakota.

Calumet Specialty Products' unit price before its last ex-date on October 30, 2015 was $27.68 on October 28. The unit price has dropped into the $17s in mid-December and opened on January 7, 2016 at $19.62. Based on the company's performance and the unit price growth potential, we expect the price to climb near the $24 range, giving investors a unit price increase of $4.38 from now to the ex-date.

Last quarter the distribution was $0.685, and has been for the last 10 quarters dating back to July 31, 2013. We expect it to remain there, but are willing to consider a drop to $0.60 with the crack spread falling so much this quarter. Over the last year the crack spread had increased, the company did not raise the distribution, so we believe they will hold their price at $0.685. Buying the stock today and taking the distribution of $0.685 would create a 3.39% return for this quarter, or 13.56% for the year.

As the overall market is flat with the threat of China's economic rumbles disrupting the world's markets (and the U.S. markets), investors are willing to look at higher paying dividend and distribution companies to create gains in their portfolios.

Using our 90-day investment strategy of buying in now at $19.62 and selling as the price approaches our expected price of $24.00, which would return $4.38 or 22% gain for just this quarter. This would be an exceptional opportunity for investors, as we plan to execute this process 4 times a year.

We recommend a buy for Calumet Specialty Products Partners, L.P., and if you can find a drop near $19.50, that would be a great entry point.

Disclosure: I/we 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.

Additional disclosure: I currently have no position, but will be looking for a drop in the unit price, somewhere around $19.50 to buy in.

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