WLKP 020516 19.10 Yld 6.49 PE 11.11
Westlake Chemical Partners (NYSE: WLKP) is a limited partnership formed by Westlake Chemical Corporation to operate, acquire and develop facilities for the processing of natural gas liquids as well as other qualified assets. Our business and operations are conducted through OpCo, a recently-formed partnership between Westlake Chemical Corporation and Westlake Chemical Partners. Our assets include three ethylene production facilities in Calvert City, Kentucky, and Lake Charles, Louisiana, with an annual capacity of approximately 3.4 billion pounds and a 200-mile ethylene pipeline.
“Divi-X” Play of the Week
This week, we are shining the spotlight on a company that doesn’t quite fit into my normal evaluation process. One of the unofficial criteria that I use when selecting a company is to answer the question; is the company doing better today than it was five years ago? Sometimes, though, I will run across a security that looks very good to me but doesn’t have enough of a history to be able to answer that question. One of the things that attracts me to certain securities like this is when a company’s stock “forms a base after falling from IPO grace.” This is a term I coin stocks that fall considerably after the IPO hype dies down and the over-evaluation is removed from the shares price. Westlake Chemical Partners LP (WLKP), in my opinion, is one such company.
Westlake Chemical Partners LP (WLKP), has a very young trading history which made it’s NYSE debut back in August of 2014. (WLKP)’s “partner”, however, has been around since 1986. Westlake Chemical Partners LP (WLKP) was formed by Westlake Chemical Corporation, a vertically integrated manufacturer and marketer of basic chemicals, vinyls, polymers and fabricated building products based out of Houston TX.
Another criteria that I use when making security selections is; how much of a company’s revenue is derived from their biggest customers? Normally, I like to see this number below ten percent at any one time, but in the case of (WLKP), this company was set up to be the primary supplier to the parent, Westlake Chemical Corporation.
Here are the details of their arrangement:
The company also boasts their intentions to grow distributions over time, maintain a distribution coverage ratio target of 1.17x, tremendous liquidity, reasonable debt load, and growth ambitions. All this can be seen in the company’s slide presentation at the link provided above. An easy and informative read.
This website does not do in-depth analysis or make recommendations on individual security selections. This article is for learning purposes only and we strongly suggest you do your own due diligence when investing in any security.
Normally, this is where I would do a recap of a securities five year history but as I explained, there isn’t one for (WLKP) so we’re going to jump right into the five year projections.
As of February 5, 2016, this is what your five year ‘Leverage Projection’ would look like:
Based on “Divi-X” suggested guidelines, we chose a “Multiplier Pick” of 65 because (WLKP) sports a yield of 6.45% as of todays closing price of $19.10. Keep in mind that you are free to choose whatever “Multiplier Pick” you like. This would allow us to leverage up to 34.94% ($667.33) of our total purchase ($1,910.00) using “Divi-X.” As usual, we went with the 1.25% “Pmt Perc” and a “Margin Rate” of 7.75% (margin rates will vary depending on your source of margin and source terms).
If all goes well, below is what our projected 5 year milestones will look like:
A few things to note about this chart:
- As you can see from the chart above, we are anticipating that our ‘Divi-X Return’ will double our cash investment by approximately July 2020, about a year and a half sooner than we are expecting ‘Without “Divi-X.”
- After five years, we hope to see our “Divi-X” returns outpace ‘Without “Divi-X” returns by at least 29.57% ($2,699.40 less $2,331.91 divided by $1,242.67 cash investment).
If you are reading this article and scratching your head, it’s because you haven’t learned our very simple system.
And finally, our projected yields for the next twenty years:
A few things to note about this chart:
- Based on our ‘Cash Yield’ projection, if there is no further dividend increase, we will surpass the company’s ‘Stock Yield’ as early as 2020, four years from now.
- The company has already stated that their intention is to grow the distribution yield. Depending on how aggressive or conservative that distribution growth is, you can see that our ‘Proj Cash Yield,’ which is projected to surpass the company’s ‘Stock Yield’ as early as 2018 is a very real possibility.
That’s all there is to it. We’ll check back in on this one next year to see how we’re doing. As always, many happy returns.
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The security showcased here is for learning purposes only. It is not a recommendation or an endorsement of any kind. Do your own due diligence before making any investment.