High-Dividend Stock Has 49 Straight Dividend Hikes, Yields 7%, More Hikes Due In 2017


  • This stock yields over 7%, with 1.10x coverage.
  • Management has raised the distribution every quarter since the company's IPO - 49 straight quarters - and is targeting 8% annual distribution growth in 2017.
  • The company has a competitive advantage, due to where its assets are located.
  • Q4 '16 revenue grew 15%, EBITDA grew 14%, and DCF grew 9%.

"Location, location, location" - you've heard that phrase in relation to retail. Well, it's also important in many other industries, such as the US energy industry, where certain shale plays have cost advantages.

The Permian Basin in West Texas and southeastern New Mexico is a low-cost producing area, where the breakeven is estimated to be somewhere around $32/barrel.

A new research report from Jefferies shows huge declines in wellhead breakeven costs since 2013. Jefferies Global Head of Energy Investment Banking Ralph Eads recently said:

"We have seen an amazing renaissance in oil and gas M&A, largely driven by the Permian Basin. The Permian has become pretty clearly the best oil province on the planet in my opinion, not just the country. This is an asset that's almost nonoptional." (Source: The Deal)

This cost advantage plays to the strengths of midstream firm Holly Energy Partners L.P. (NYSE:NYSE:HEP), and its parent/general partner, HollyFrontier Corp. (NYSE:HFC).

As you can see from the map, HEP and HFC have a strong presence in the West Texas Permian Basin area, with a refinery, several terminals, pipelines and other assets concentrated in this high growth area.

HEP derives 80% of its revenues from long-term contacts with minimum volume or revenue commitments. 100% of its revenues are fee based, with limited commodity risk. Its earliest contract, 17% of its total business, is up for renewal in 2019.

(Source: HEP site)

Distributions: Due to the stability of its fee-based model, management has been able to continuously grow the distribution through crude oil bust and boom cycles since its IPO.

HEP's most recent distribution was $.6025, which marked its 49th straight distribution hike. Think it'll match Joe DiMaggio's 56-game hitting streak?

Our High Dividend Stocks By Sector Tables track HEP's price and current dividend yield (in the Basic Materials section).

This article was written by

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Target 5-10% yields backed by solid earnings for better portfolio income.

Robert Hauver, MBA, was VP of Finance for an industry-leading corporation for 18 years, and publishes SA articles under the name DoubleDividendStocks. TipRanks rates DoubleDividendStocks in the Top 25 of all financial bloggers, and Seeking Alpha rates us in the Top 5 of several categories, including Dividend Ideas, Basic Materials, and Utilities. 

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Disclosure: I am/we are long MPLX, GPP, ARCX, MMLP. 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.

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