BlueKnight Energy Partners (BKEP) Update - Oct 6

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

BlueKnight Energy Partners (BKEP) Update - Oct 6

Post by dan_s »

BlueKnight is a unique midstream company in our High Yield Income Portfolio. It is an asphalt storage company with a terminal network spread across 26 states.
Earlier this year they sold their crude oil business and used the proceeds to pay off ~60% of their debt. The balance sheet is now rock solid and they generate more than enough Distributable Cash Flow (DCF) to cover their quarterly distributions.

BlueKnight is an MLP that has common units (BKEP) and preferred units (BKEPP), which are in our High Yield Income Portfolio.

I recommend the preferred units for high yield because they pay a fixed dividend of $0.17875 per quarter that must be paid before any distributions can be paid to the common unit holders. So, the risk of not keeping dividends up-to-date on the preferred units is close to zero. Annualized yield on BKEPP is currently 8.8%, partially tax deferred. Go look at a 5-year chart for BKEPP and you will see that the unit price recovered quickly from the pandemic fear related selloff in early 2020 and the company never missed a quarterly dividend on the preferred units. I give it an A++ safety rating.

In addition to the strong balance sheet this company will benefit from any version of an infrastructure spending bill that gets passed in Washington.

The common units (BKEP) are trading at $3.10 today, which compares to my valuation of $6.00. The annualized dividend of $0.16/unit is a lower yield (5.16%), but they obviously have more unit appreciation upside as DCF coverage continues to increase. Demand for asphalt is fairly consistent and BlueKnight's operating cash flow actually increased from 2019 to 2020. If my 2022 forecast is accurate, they could double the dividend on BKEP.
Dan Steffens
Energy Prospectus Group
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