Alon USA Partners
Dividend Yield: 18.7%
Float Short (as of July 31 data): 20.3%
So far, the shorts have been right for our last pick.
Alon USA Partners (ALDW) was spun off from Alon USA Energy (ALJ) late last year. The spinoff hit the markets for $16 per share, and is currently trading 8% lower than the offer price despite a strong start. So far in 2013, the company has lost around 38% of its value.
It’s likely a number of people chased what even initially was a double-digit dividend before realizing what they were piling into. See, the structure of limited partnerships like this one is a double-edged sword. Sure, ALDW is required to pay back most of its earnings to shareholders — which is why the company’s second payout amounted to $1.48 per share — but Alon’s earnings have been taking a huge hit of late, and that results not only in lower payouts but share-price declines thanks to fleeing investors.
The most recent payout was more than cut in half while, in the most recent quarter, the company missing earnings expectations by around 22%. Overall this year, earnings are slated to fall by more than 52%, while 2014’s EPS should take another 45% haircut.
Heck, contracting crude oil differentials contracted have hurt the company so much, a Credit Suisse analyst actually posed this question at the last conference call:
“I’m just wondering if you see yourself in a situation where the cash available for distribution in the third quarter kind of below zero. Would you … try and raise debt to pay out some kind of distribution or what would be your thought process there?”
The fact that such a possibility is being openly discussed is a huge red flag — and should make you realize that an 18% dividend yield might be a lot of things, but it sure isn’t sustainable.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.