Tesoro Logistics Hikes Its Cash Distribution: Shareholders Happy!
Fuel-gatherer/transporter Tesoro Logistics L.P. (TLLP) raised its fourth quarter 2012 cash distribution to 47.25 cents per unit ($1.89 per unit annualized), representing an increase of approximately 4% sequentially and 30% year over year.
Tesoro Logistics’ announced distribution boost is in sync with its goal of delivering disciplined growth to unitholders. The partnership boasts a consistent and improving financial policy with high distribution coverage. Tesoro Logistics’ new distribution is payable on Feb 14 to unitholders of record as on Feb 4, 2013.
San Antonio, Texas-based Tesoro Logistics is engaged in the ownership, operation, development and acquisition of crude oil and refined products logistics assets.
The partnership is set to benefit from its ties with asset-rich sponsor Tesoro Corp. (TSO), which retains a 56% stake in the partnership. A sound fee-based relationship with Tesoro – the nation’s second-largest independent refiner – shields the pipeline operator from competitive pressures in the midstream energy space, providing it with stable cash flows and consistent top-line growth opportunities.
Additionally, Tesoro Logistics continues to leverage its relationship with Tesoro to make ‘drop-down’ transactions (or asset buys from the partnership’s sponsor company).
However, we believe that these positive aspects are well reflected in the current unit price, leaving little room for upward movement in the near term. We are also concerned about the partnership’s valuation. Units of Tesoro Logistics are going for about 20.3 times forward estimates, a slight premium to the peer group average of 20.0x.
Tesoro Logistics currently retains a Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, there are certain other energy pipeline operators like Broadwalk Pipeline Partners L.P. (BWP) and Sunoco Logistics Partners L.P. (SXL) that offer tremendous value and are worth buying now. Both these partnerships sport a Rank #1 (Strong Buy).