3/8/25
Delek Logistics Partners, LP (NYSE: DKL) operates in the midstream energy sector, specializing in crude oil and refined product logistics. It plays a critical role in supporting its parent company, Delek US Holdings, while also serving third-party customers.
For income investors, DKL’s double-digit dividend yield is a major draw. But when you look under the hood, there are some red flags—particularly its high payout ratio and substantial debt load. Is this a reliable income play, or does the risk outweigh the reward? Let’s take a deeper look at DKL from a dividend investor’s perspective.
Key Dividend Metrics
📌 Dividend Yield: 10.93%
💰 Annual Dividend: $4.42 per share
📈 5-Year Average Yield: 9.98%
📆 Most Recent Dividend: February 11, 2025
⚠ Payout Ratio: 144.31%
🔍 Dividend Growth: Consistent but facing sustainability challenges
Dividend Overview
DKL boasts an eye-catching dividend yield of 10.93%, which is significantly higher than its five-year average of 9.98%. For income-focused investors, this kind of yield is rare outside of the energy sector.
However, the company’s payout ratio tells a different story. At 144.31%, DKL is paying out more in dividends than it earns, which raises concerns about sustainability. Companies with payout ratios above 100% often need to rely on debt or asset sales to maintain dividends—an unsustainable long-term strategy.
The company has a strong track record of regular dividend payments, and the latest one was issued on February 11, 2025. But with declining revenue and a heavy debt load, maintaining these payments at current levels could be challenging.
Dividend Growth and Safety
DKL has a history of dividend growth, but that growth has slowed in recent years. The biggest concern here isn’t just whether the company will continue raising its dividend—it’s whether it can afford to keep paying at all.
- Free cash flow is negative at -$36.3 million, meaning the company is not generating enough cash to fully cover its dividends.
- Total debt sits at $1.89 billion, and with a debt-to-equity ratio exceeding 5,300%, the company is heavily leveraged.
- While EBITDA margins are respectable at 18.26%, declining revenue could start to squeeze profits and make dividend payments harder to sustain.
A company with this kind of financial profile needs consistent and growing cash flows to support its dividend. If earnings stumble or borrowing costs rise, DKL may be forced to cut its payout.
Chart Analysis
Moving Averages and Trend Direction
The 50-day moving average (light blue line) is now trending slightly above the 200-day moving average (dark blue line), which suggests a possible shift in momentum. The stock spent most of last year trading below both moving averages, indicating a downtrend. However, the recent crossover in early 2025 hints that bullish sentiment may be trying to take control. That said, the price has recently dipped back below the 50-day moving average, so this rally isn’t entirely convincing just yet.
Price Action and Support Levels
The price recently bounced from the $40 level after a brief pullback, showing that buyers are stepping in near this area. The most recent high touched around $45 before selling pressure pushed it lower. If the stock can reclaim the 50-day moving average and hold above it, that could reinforce bullish momentum. On the downside, a break below $40 could signal further weakness and put the 200-day moving average back in play as potential support.
Volume and Market Participation
Volume spikes have been sporadic, with a few noticeable surges in trading activity, particularly around major price moves. The highest volume bars appear near peaks and troughs, suggesting that institutional players or large traders are active at key levels. Recent volume has been relatively subdued, which means any upcoming breakout or breakdown needs confirmation with stronger participation.
Relative Strength Index (RSI) and Momentum
The RSI has been cooling off after reaching overbought levels earlier in the year. It’s now in a more neutral zone, signaling that the stock is neither overbought nor oversold at the moment. If the RSI turns higher from here, it could support a continuation of the previous uptrend. However, if it drifts lower, it would confirm weakening momentum.
Recent Candlestick Behavior
The last five candles show some indecision, with wicks on both ends reflecting a battle between buyers and sellers. The most recent candle closed slightly higher, but the presence of upper wicks suggests that sellers are still active at higher levels. This type of price action usually means the stock is searching for direction, and a clear move above or below the recent range will likely set the tone for the next trend.
Analyst Ratings
📈 Upgrades
🔵 On August 28, 2024, Citigroup upgraded DKL, raising its price target to $45. This positive outlook was driven by the company’s strong dividend yield and consistent cash flows, which continue to attract income-focused investors.
🟢 On November 18, 2024, Truist Securities maintained an optimistic stance, setting a price target of $50. Analysts cited solid operational performance and strategic business moves that could support long-term stability and potential growth.
📉 Downgrades
🔴 On October 17, 2024, B of A Securities took a more cautious approach, reinstating coverage with a lower price target of $36. The downgrade was based on concerns over high debt levels and the potential strain on dividend sustainability if cash flows weaken.
🟠 On January 18, 2025, another downgrade surfaced when an analyst revised their rating to “Hold” with a price target of $44. The reasoning behind this shift was a combination of valuation concerns and operational challenges, despite the stock’s still-attractive dividend yield.
📊 Consensus Price Target
📌 The current average price target for DKL sits around $44.25, with individual targets ranging from $36.00 to $50.00. This suggests a mixed sentiment among analysts—some remain bullish on the stock’s income potential, while others are cautious due to financial risks and market conditions.
Earning Report Summary
Delek Logistics Partners, LP (DKL) wrapped up the fourth quarter of 2024 with mixed results. The company posted a net income of $35.3 million, translating to $0.68 per unit, which came in lower than what analysts were expecting. Revenue for the quarter landed at $209.86 million, also falling short of projections.
Even with these misses, there were some bright spots. Adjusted EBITDA reached a record $107.2 million, up 6 percent year-over-year. The biggest drivers behind this growth were strong performance from the Delaware Gathering systems and the recently acquired H2O Midstream.
DKL made some strategic moves throughout the year to strengthen its presence in the Permian Basin. It took over Delek US’s share of the Wink to Webster pipeline, completed the acquisition of H2O Midstream, and kicked off new gas processing and acid gas injection projects. These efforts expanded the company’s dedicated acreage in the Midland Basin to about 400,000 acres.
To fund its growth, DKL raised $298 million through two separate offerings. As a result, its third-party EBITDA contribution climbed to roughly 70 percent, showing that it’s becoming less reliant on its parent company, Delek US.
Dividend investors saw another increase, with the quarterly cash distribution rising to $1.105 per unit for the fourth quarter of 2024, which was paid on February 11, 2025. That’s a 0.5 percent bump from the prior quarter and 4.7 percent higher year-over-year—a solid move for those counting on steady income.
On the balance sheet side, DKL reported $1.88 billion in total debt and $5.4 million in cash at the end of 2024. The leverage ratio stood at 4.06x, and the company still had $714.6 million in available borrowing capacity on its $1.15 billion revolving credit facility.
Looking ahead, 2025 is already off to an eventful start. DKL just wrapped up the acquisition of Gravity Water Midstream and rolled out an adjusted EBITDA guidance of $480 million to $520 million for the full year. The company also announced a $150 million buyback program, aimed at reducing outstanding units and trimming future distribution costs.
DKL is clearly making moves to expand and strengthen its financial position, but investors will be keeping a close eye on whether earnings can catch up with its ambitious plans.
Financial Health and Stability
DKL is profitable, but its financial health raises some concerns.
- Net income stands at $141.92 million, a solid figure.
- EBITDA is $297 million, giving it some earnings cushion.
- Quarterly earnings growth is strong at 59.40% year over year, but revenue has fallen 17.4% over the same period.
- The company has just $5.38 million in cash on hand—an extremely low level considering its debt obligations.
Its current ratio of 1.64 indicates it can meet short-term liabilities, but the high debt load remains a major risk factor. A company carrying this much debt needs steady cash flow, or it risks financial strain.
Valuation and Stock Performance
DKL isn’t necessarily cheap, even with its high yield.
- The stock trades at 13.53 times trailing earnings, a reasonable multiple but not a deep-value opportunity.
- The price-to-sales ratio is 2.04, meaning it trades at a premium relative to revenue.
- Enterprise Value/EBITDA stands at 10.27, indicating a moderately high valuation for a midstream company.
Over the past year, DKL has traded between $37.02 and $45.71. It’s currently sitting at $41.07, near its 200-day moving average of $40.72. The stock has been relatively stable but remains sensitive to energy market fluctuations.
Risks and Considerations
DKL’s high dividend is attractive, but there are a few risks investors need to keep in mind.
- Sustainability of the Dividend – A 144.31% payout ratio is simply not sustainable long-term. Without improved earnings or cash flow, a dividend cut is a real possibility.
- Heavy Debt Load – With nearly $1.9 billion in debt and a very high debt-to-equity ratio, the company is highly leveraged. Rising interest rates or tightening credit markets could make refinancing difficult.
- Revenue Decline – Quarterly revenue has dropped 17.4% year over year. If this trend continues, profitability will come under pressure.
- Stock Volatility – DKL has a beta of 1.97, meaning it’s nearly twice as volatile as the broader market. This could be a concern for investors looking for stability.
- Dependence on Parent Company – As a logistics arm of Delek US Holdings, DKL relies heavily on its parent for business. Any operational issues at Delek’s refineries could impact DKL’s revenue.
Final Thoughts
DKL offers an enticing 10.93% dividend yield, making it a compelling option for income investors. However, its high payout ratio and heavy debt burden raise serious questions about sustainability.
While the company has a history of steady dividend payments, the financials suggest a potential risk of a dividend cut in the future. If earnings growth stalls or cash flow remains weak, maintaining the current payout may not be feasible without taking on even more debt.
For investors willing to take on some risk in exchange for high yield, DKL could remain an interesting option. But for those seeking a safer, more stable income stream, the financial red flags make this a stock worth approaching with caution.
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