Diversified midstream energy operator Genesis Energy L.P. (GEL - Free Report) raised its second quarter 2013 cash distribution to 51 cents per unit ($2.04 per unit annualized), representing an increase of approximately 2.5% sequentially and 10.9% year over year. Importantly, the latest payout marks the 32nd consecutive quarterly distribution hike by the pipeline operator, of which 27 increases have been 10% or more year over year.
Genesis Energy’s announced distribution boost is in sync with its goal of delivering disciplined growth to unitholders. The partnership boasts of a consistent and improving financial policy with high distribution coverage. Genesis Energy’s new distribution is payable on Aug 14 to unitholders of record as on Aug 1, 2013.
Houston, TX-based Genesis Energy is a master limited partnership that operates crude oil pipelines and is an independent gatherer and marketer of crude oil in North America, with operations concentrated in Texas, Louisiana, Alabama, Florida, Mississippi and New Mexico. Genesis Energy engages in three business segments: Pipeline Transportation, Refinery Services, and Supply and Logistics.
With a juicy distribution yield of 3.8%, a business model focused on operational efficiencies and attractive acquisitions/growth projects, Genesis Energy provides investors with a steady, predictable income stream.
However, valuation looks expensive for Genesis Energy. In particular, the partnership has a price-to-book (P/B) ratio of 4.9, which suggests that the stock is overvalued. (A P/B ratio under 3.0 generally indicates value.)
As a result, Genesis Energy – which acquired interests in Gulf of Mexico oil pipelines from Marathon Oil Corp. (MRO - Free Report) in Jan last year – currently carries a Zacks 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, one can look at Delek Logistics Partners L.P. (DKL - Free Report) and Rose Rock Midstream L.P. as good buying opportunities. These energy pipeline partnerships – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.