BUCKEYE PARTNERS L.P. $73(New York symbol BPL; Income Portfolio, Utilities sector; Units outstanding: 130.3 million; Market cap: $9.5 billion; Price-to-sales ratio: 3.0; Dividend yield: 6.6%; TSINetwork Rating: Average; www.buckeye.com) operates 9,700 kilometres of pipelines in the northeastern and Midwestern U.S. Its network pumps gasoline, jet fuel and other petroleum products.
In the past few years, Buckeye has steadily expanded its oil storage operations. It now has 117 terminals in the U.S. with a total capacity of 55.6 million barrels.
The company also owns seven marine storage terminals that serve ocean-going oil tankers in New York City, Corpus Christi, Texas, Puerto Rico, St. Lucia and The Bahamas. These facilities have a combined capacity of 62.3 million barrels.
Due to the recent weakness in oil prices, many producers are opting to store their crude while they wait for prices to recover.
As a result, Buckeye’s marine terminals operated at 99% capacity in the three months ended March 31, 2016. That helped push up its revenue from storage and transportation services (51% of total revenue) by 13.8% from a year earlier. However, weaker volumes and prices cut revenue from the sale of oil products (49%) by 48.0%. That caused Buckeye’s overall sales in the quarter to decline 28.3%, to $780.6 million from $1.1 billion.
Thanks to higher margins from the storage operations, earnings jumped 17.5%, to $131.1 million from $111.6 million. Earnings per unit gained 14.8%, to $1.01 from $0.88, on more units outstanding.
Buckeye recently increased its quarterly distribution by 1.1%, to $1.20 a unit from $1.1875. The new annual rate of $4.80 yields 6.6%. Distributions accounted for 87.9% of its cash flow in the latest quarter.
The partnership’s sound balance sheet will let it continue to keep raising its distributions and investing in its operations. As of March 31, 2016, its long-term debt of $3.7 billion is a manageable 39% of its market cap. It also held cash of $5.7 million.
Buckeye trades at a reasonable 17.9 times the $4.08 a unit that it will probably earn in 2016.
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