Dividends4Life: 7% Yield And 47 Quarters Of Distribution Growth

The first and foremost thing to remember when investing in a refinery MLP is that you're along for the ride. Everything is done for the primary benefit of the refinery operations, not the logistics partners. However, like any good parent, this company, has a lot at stake in seeing its child succeed, including a ~37% ownership, a 2% GP interest and IDRs. What was the point if it owns so much of the company? Firstly, this structure allows ii to still operationally control the assets compared to an outright sale. Second, it allows it to be used as a financing vehicle by the parent, converting undervalued/risky assets into high-value assets by adding greater security to cash flows via contracts. For this arrangement, it is compensated with IDRs (a performance-sharing fee much like a hedge fund charges). In other words, the growing, secure ~7% yield is not without a significant price.

Holly Energy Partners, L.P. (NYSE: HEP) is the logistics MLP spinoff of HollyFrontier Corp. (NYSE: HFC), an independent refiner with operations mostly in the Midwest and Rockies. You may not have heard about HEP, probably because it's a smaller MLP (about a $2B market cap) sponsored by a smaller refiner (although five refineries and a $5B market cap is nothing to sneer at). Since its IPO in 2004, it has increased its distribution every quarter - an impressive feat that puts it in the "Dividend Contender" club and should make heads turn twice.

Source: Seeking Alpha

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