Entering text into the input field will update the search result below

Buy The 7.7% Distribution Yield Of Holly Energy Partners Before It Drops Further

Mar. 03, 2021 4:16 PM ETHolly Energy Partners, L.P. (HEP)9 Comments
Aristofanis Papadatos profile picture
Aristofanis Papadatos


  • HEP has proved one of the most resilient oil companies to the pandemic.
  • Due to the steep rally of HEP, its distribution yield has decreased from 11.0% to 7.7% in about four months.
  • However, investors should not dismiss the stock for this reason.
  • The yield of HEP remains attractive, particularly given the distribution coverage ratio of 1.92.

About four months ago, I stated that the 11.0% distribution yield that Holly Energy Partners (NYSE:HEP) was offering back then was safe. Since then, the business outlook of the MLP has greatly improved and hence its distribution has become even safer. Even better for the unitholders, the stock has rallied 47% since my article and thus its yield has dropped to 7.7%. Nevertheless, Holly Energy Partners remains attractive and hence investors should lock in its current yield before it drops further.

Business overview

Holly Energy Partners owns essentially all the pipeline network of crude oil and refined products as well as the terminal assets that support the refining and marketing business of HollyFrontier (HFC). Among others, this asset portfolio includes storage capacity of approximately 15 million barrels of refined products and 3,400 miles of pipelines of crude oil and refined products.

Holly Energy Partners faced an unprecedented downturn last year. Due to the coronavirus crisis, the global demand for oil products plunged the most in at least 30 years, from 101.4 million barrels per day in 2019 to 92.3 million barrels per day in 2020. The U.S. refiners were greatly affected by this decrease in consumption and thus they drastically reduced their refinery utilization rates and their production of refined products. As Holly Energy Partners generates its revenues from the transportation and storage of crude oil and refined products, it was inevitably affected by the steep decrease in the production of refined products.

However, Holly Energy Partners has one of the most resilient business models in the energy sector. Nearly all its revenues are fee-based while the company has minimum-volume requirements in the contracts with its customers. These minimum-volume requirements, which force customers to execute minimum payments regardless of their actual volumes, comprise approximately 70% of the total revenue of Holly Energy Partners. As a

ChartData by YCharts

This article was written by

Aristofanis Papadatos profile picture
I am a chemical engineer with a MS in Food Technology and Economics. I am also the author of 2 mathematics books ("Arithmetic calculations without a calculator" and "Word Problems") and perform almost all the calculations in my mind, without a calculator, making it easier to make immediate investing decisions among many alternatives. I invest applying fundamental and technical analysis and mainly use options as a tool for both investing and trading. I have nearly achieved my goal of early retirement, at the age of 45. In my spare time, I follow Warren Buffett's principle: "Some men read playboy. I read financial statements".

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.