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USD Partners: The 8.50% Yield Looks Set To Grow Soon

Mar. 08, 2021 9:07 AM ETUSD Partners LP (USDP)14 Comments
DT Analysis profile picture
DT Analysis


  • The crude oil by rail-focused USD Partners seems rather overlooked along with their sustainable high 8.50% distribution yield.
  • Despite seeing non-cash impairments during 2020, they performed very well with their operating cash flow increasing almost 20% year on year.
  • Management seems positive regarding the outlook for 2021, which sets them up well to grow their distributions higher quite soon.
  • By the end of the third quarter of 2020, they should have deleveraged down into the moderate territory and thus have scope to materially increase their distributions.
  • Given this positive outlook and continued strong performance, it should be of little surprise that I will be maintaining my bullish rating.


When originally analyzing the crude oil by rail-focused midstream operator, USD Partners (OTC:USDP), my previous article found that their small and rather overlooked partnership was offering a sustainable distribution that now still presently offers a high 8.50% yield. A follow-up analysis is now provided that reviews their prospects to grow their distributions even higher in the foreseeable future, along with their subsequently released results for the fourth quarter of 2020

Executive Summary & Ratings

Since many readers are likely short on time, the table below provides a very brief executive summary and ratings for the primary criteria that was assessed. This Google Document provides a list of all my equivalent ratings as well as more information regarding my rating system. The following section provides a detailed analysis for those readers who are wishing to dig deeper into their situation.

USD Partners rating

Image Source: Author.

*There are significant short and medium-term uncertainties for the broader oil and gas industry, however, in the long-term they will certainly face a decline as the world moves away from fossil fuels.

**Whilst the oil and gas industry to which they service has high economic sensitivity, given the more stable nature of the midstream sub-industry this was deemed to be average.

Detailed Analysis

USD Partners cash flows

USD Partners notes 1

Image Source: Author.

Instead of simply assessing distribution coverage through distributable cash flow, I prefer to utilize free cash flow since it provides the toughest criteria and best captures the true impact on their financial position. The main difference between the two is that the former ignores the capital expenditure that relates to growth projects, which given the very high capital intensity of their industry can create a material difference.

The original analysis warned that their former quarterly distributions of $0.37 per unit versus their current $0.111 per unit had very limited prospects of being reinstated. This

This article was written by

DT Analysis profile picture
I am no longer active, as I am taking a hiatus from finance to pursue business ventures in other sectors.  I hope that my analysis was helpful to investors across the years, thank you.

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.

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Comments (14)

Someone get an advance sniff of the qtr? Big surge in vol.
Another big vol pop over 6. Think that RAIL action spills over here.
Haha, someone besides me is buying today.
So, you write an article on Dec. 14, bullish about the stock, but don't initiate a position....you then write this article 3 months later, still bullish, but again don't initiate a position?
If you're so bullish, why not initiate a position??
Silky Oak Capital profile picture
@initforthelonghaul Those SA contributor payouts aren't what they used to be.
Got a little pop today to a new relative high.
I assume since it is an mlp that a substantial portion of the distributions is ROC and not currently taxable. Is that assumption correct?
CopiusPettifogger profile picture
Bought a bunch at $3.27 leaving a lot of room to average up. Currently overweight on energy, but happy to do it.
Good article but no mention of the DRU build or the associated extension of long term contracts. That should hopefully be completed by end of Q2, and if 10 year take or pay contacts are put in place (right now only 30% at Hardisty), it’s a game changer. To the comment about why did they wait until
COVID to reduce div payment, not sure. With their entity structure and capital partner, I’m not sure they couldn’t restore the div fully and depend on their partner to deploy capital funds and Usdp leverages up again or does long term leases.
Silky Oak Capital profile picture
@Nince I think the plan is to do drop downs. So they want to lower leverage so they can borrow to do those drop downs.

Normally that would make me unhappy, but here I think drop downs will be done at attractive valuations, since those DRU terminals are quite cheap to build for their GP. And almost all directors increased their stake in USDP in 2020, so Im quite optimistic here.

Also there is an incentive for the GP to raise sustainable distributions well above $1 per share due to IDR's. Since IDR's only really kick in at around $1 per share. I think this is one of the few cases where IDR's actually help for minority investors at current valuation.

I think this is a very easy double if you can wait a year or two for it to happen.
Eileen Dover profile picture
Why did they keep increasing the dividend for 4 years including the 1st qtr of 2020 before dropping it 70% ? For how long did they know they were going to massively cut it before having the convenient excuse of Covid to use?
Carson7 profile picture
The fourth quarter of 2020 saw their net debt continue shrinking thanks to their free cash flow after distribution payments, dropping an impressive 4.28% in the quarter alone from $193m to $184m.

The debt is greater than the stock market cap. Not for me..
@Carson7 So if the units were trading at 2x their current prices, implying a market cap higher than the debt, you would be a buyer? But not now?
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