The Secret's Out: Buy This Magnificent High-Yield Dividend Stock Before Wall Street Catches On

Delek Logistics Partners (NYSE: DKL) flies under the radar of most Wall Street analysts. Only a handful of them cover the company, and those who do have differing opinions, with two rating it a hold, one a buy, and another a strong buy.

Given its lack of coverage, most investors likely don't know how good the master limited partnership (MLP) has been at distributing cash to its investors. It recently delivered its 46th consecutive quarterly distribution increase. The nearly 2% raise pushed its yield close to 11%.

That monster income stream is on a sustainable foundation and should continue heading higher. That makes it a very attractive stock for income.

Building a solid foundation

Delek Logistics generates a lot of stable cash flow. The midstream company provides logistics services to its parent, refiner Delek US Holdings (NYSE: DK ), and third-party customers. It recently amended and extended its agreements with Delek US for up to seven years, increasing its long-term visibility.

Meanwhile, it has been working to diversify its exposure to its parent by acquiring and building assets to support third-party customers. It currently gets half its earnings from its parent, a number it expects will decline to 36% in the second half of next year as it continues growing its third-party volumes.

The MLP generates enough cash to cover its monster distribution payment with plenty of room to spare. It ended the second quarter with a distribution coverage ratio of 1.32 times. That healthy coverage level enables the company to retain added cash to fund its continued expansion and strengthen its balance sheet.

Delek Logistics Partners has been working to shore up its financial foundation by reducing its leverage ratio , which was down to 3.81 at the end of the second quarter from 4.34 at the end of last year and 4.89 at the end of 2022.

The company has been able to lower its leverage while continuing to invest in expanding its operations and cash flow. That has given it the wherewithal to increase its distribution without raising its coverage ratio. The MLP has grown its distribution payment by 5.3% over the past year while keeping its coverage ratio flat with 2022's level of 1.32.

The fuel to continue growing

Delek Logistics Partners has been working hard to expand and diversify its operations in recent years. In 2022, it bought 3Bear Energy for $624.7 million in cash to boost its third-party revenue, diversify its operations, and enhance its growth. The acquisition generates lots of free cash flow, which enabled the company to reduce its leverage ratio and grow its distribution.

The MLP recently made two more acquisitions. It bought Delek US' interest in the Wink to Webster Pipeline System, which transports crude oil from producers like ExxonMobil out of the Permian Basin to refining and export markets along the U.S. Gulf Coast. It also agreed to acquire H2O Midstream for $230 million to expand its midstream services in the Permian Basin. These deals will further diversify the company's operations and third-party volumes to lessen its reliance on Delek US .

Delek Logistics Partners will also invest in organic expansion projects as opportunities arise. It recently made a final investment decision to build a new natural gas processing plant near an existing facility in the Delaware Basin side of the Permian. This new project and its recent acquisitions will turn Delek Logistics into a premier full-service midstream provider in the Permian Basin.

The company's growth-focused investments will supply it with a rising stream of incremental cash flow that should allow the MLP to continue pushing its high-yielding payout higher .

A well-oiled income machine

Delek Logistics Partners has quietly put together a magnificent record of increasing its distribution to investors. The company backs its big-time payout with stable cash flow and a solid financial foundation. The MLP's financial flexibility has enabled it to continue investing in growing its operations, which should give it the ability to increase its distribution payments in the future.

That makes it a compelling option for those who are seeking a lucrative and steadily rising income stream (and who are comfortable with the tax complexities of investing in an MLP, including that they send a Schedule K-1 Federal Tax Form each year).

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Delek Us. The Motley Fool has a disclosure policy .