The secret’s out: Buy this magnificent high-yielding dividend stock before Wall Street catches on

Delek Logistics Partners (DKL -1.13%) flies under the radar of most Wall Street analysts. Only a few of them cover the company, and those who do have differing opinions, with two rating it a hold, one a buy and one a strong buy.

Given the lack of coverage, most investors probably don’t know how good it is master limited partnership (MLP) was to distribute cash to its investors. It recently posted its 46th consecutive quarterly distribution increase. The nearly 2 percent increase pushed its yield to nearly 11 percent.

This monster income stream is on a sustainable footing and should continue to go higher. That’s what it does a very attractive stock for income.

Building a solid foundation

Delek Logistics generates a a lot of stable cash flow. The midstream company provides logistics services to its mother, refiner Delek US Holdings (NYSE:D.K), and third party customers. It recently amended and expanded its agreements with Delek US for up to seven years, increasing its long-term visibility.

In the meantime, it has worked to diversify its exposure to the parent company by acquiring and building assets to support third-party clients. It currently receives half of its earnings from the parent company, a number it expects to drop to 36% in the second half of next year as it continues to grow its third-party volumes.

The MLP generates enough cash to cover its monstrous distribution payout with plenty of room to spare. It ended the second quarter with a distribution coverage ratio of 1.32 times. This healthy coverage level allows the company to retain additional cash to fund its continued expansion and strengthen its balance sheet.

Delek Logistics Partners was working to support its financial foundation by reducing it leverage ratiowhich fell to 3.81 at the end of the second quarter from 4.34 at the end of last year and 4.89 at the end of 2022.

The company has was able to get off its leverage by continuing to invest in expanding operations and cash flow. This gave it the means to increase its distribution without increasing its coverage rate. The MLP has increased its distribution payout by 5.3% over the past year, while maintaining a coverage ratio of 1.32 since 2022.

Fuel to keep growing

Delek Logistics Partners has been working hard to expand and diversify its operations in recent years. In 2022, it bought 3Bear Energy for $624.7 million in cash to increase its third-party revenue, diversify its operations and boost its growth. The acquisition generates plenty of free cash flow, which has allowed the company to lower its leverage ratio and grow its distribution.

MLP has recently made two other acquisitions. He bought Delek US’ interest in the Wink to Webster pipeline system, which carries crude oil from producers such as ExxonMobil from the Permian Basin to refining and export markets along US Gulf Coast. It also agreed to acquire H2O Midstream for $230 million to expand its midstream services in the Permian Basin. These transactions will further diversify the company’s operations and third-party volumes to reduce its reliance on Delek. US.

Delek Logistics Partners will also invest in organic expansion projects as opportunities arise. It recently made a final investment decision to build a new natural gas processing plant near an existing facility in the Delaware Basin portion of the Permian. This new project and its recent acquisitions will transform Delek Logistics into a premier full-service provider in the Permian Basin.

The company’s growth-focused investments will provide it with an increasing stream of incremental cash flow that should allow the MLP to continue pushing its high-yield payout higher.

A well oiled income machine

Delek Logistics Partners went quiet put together a magnificent record of growth in its distribution to investors. The company backs up its high payouts with stable cash flow and a solid financial foundation. MLP’s financial flexibility has allowed it to continue to invest in growing its operations, which should give it the ability to increase its distribution payouts going forward.

This makes it a compelling option for those looking for a profitable and steadily growing income stream (and who are comfortable with the tax complexities of investing in an MLP, including sending a Schedule K-1 Federal Tax Form every year).