BUCKEYE PARTNERS L.P. $77(New York symbol BPL; Income Portfolio, Utilities sector; Units outstanding: 127.0 million; Market cap: $9.8 billion; Price-to-sales ratio: 1.5; Dividend yield: 5.9%; TSINetwork Rating: Average; www.buckeye.com) operates over 9,600 kilometres of pipelines in the northeastern and midwestern U.S. Its network pumps gasoline, jet fuel and other petroleum products. The partnership also owns oil and gas storage terminals.
Buckeye continues to expand by acquisition. In December 2013, it paid Hess Corp. (New York symbol HES) $850 million for 19 oil-storage terminals on the U.S. east coast and one on the Caribbean island of St. Lucia. It now has over 120 terminals.
In September 2014, it paid $860 million for 80% of a new firm that operates several oil-processing plants on the U.S. Gulf Coast. The deal included a deepwater oil-transfer terminal in Corpus Christi, Texas, as well as storage tanks and pipelines.
Trafigura AG, a Netherlandsbased commodity-trading firm, owns the remaining 20%.
These new assets further diversify Buckeye’s operations away from the U.S. Midwest and Eastern Seaboard. They also help it profit from rising oil production in Texas’s Eagle Ford shale region.
Thanks to these new operations, Buckeye’s revenue rose 31.8%, to $6.7 billion in 2014 from $5.05 billion in 2013. Earnings gained 6.5%, to $374.5 million from $351.6 million.
Buckeye typically sells new units to finance its acquisitions. Due to 11.3% more units outstanding, earnings per unit fell 3.7%, to $3.11 from $3.23.
The partnership also borrowed the cash it needed for these purchases. As a result, its long-term debt rose to $3.4 billion at the end of 2014 from $3.1 billion a year earlier. That’s a high, but still manageable, 35% of its market cap.
A full year of these new businesses should increase the partnership’s 2015 earnings to $3.57 a unit. Buckeye trades at a high 21.6 times that estimate. The partnership recently raised the quarterly distribution by 1.1%. The new annual rate of $4.55 yields 5.9%.
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