WLKP

Westlake Chemical Partners ($WLKP): CEO's Buying Spree Amid Questions Over 8.5% Dividend Sustainability

08/28/2025 12:56

Westlake Chemical Partners ($WLKP) is a Houston-based ethylene production MLP with a unique business structure that sells 95% of its production through long-term take-or-pay contracts with parent company Westlake Chemical Corporation. This structure shields the company from commodity price volatility and has been the key driver enabling 14 consecutive years of distribution increases. The most notable development is CEO Jean-Marc Gilson's consistent insider buying pattern. Since taking the helm in August 2024, his purchasing activity has been remarkably persistent. He acquired 3,427 shares across six transactions from August 22-29, 2024, and made a significant $102,652 purchase of 4,700 shares in August 2025. The back-to-back purchases of 1,250 shares each on August 20-21, 2025, signal strong conviction beyond routine buying. This insider buying pattern shows an intriguing correlation with stock performance. Following management's concentrated purchases in August 2024, shares gradually climbed from the low $20s to reach $23.43 by February 2025. Currently trading near $22, the CEO's recent additional purchases suggest perceived undervaluation at current levels. Financials present mixed signals. Q2 2025 revenue of $297.12 million slightly missed consensus ($301 million), while EPS of $0.41 fell short of expectations ($0.44). However, this reflects temporary costs from the Petro R1 turnaround, with no further turnarounds planned for the next two years, supporting earnings recovery expectations. $WLKP's primary attraction is its compelling 8.5% dividend yield. However, the 126.55% payout ratio exceeding net income raises sustainability concerns. Management maintains distributions are secure based on distributable cash flow, but investors must closely monitor this metric. Broader chemical industry headwinds require consideration. KeyBanc forecasted winter storm Enzo would negatively impact Q1 chemical company earnings, while US-EU tariff tensions add uncertainty. However, $WLKP's take-or-pay contract structure provides significant protection from such industry volatility. From a valuation perspective, $WLKP presents an interesting proposition. The 14.89x P/E ratio sits below industry averages (18-22x), while the 2.52x EV/EBITDA multiple suggests meaningful undervaluation. High profitability metrics including 38.37% ROE and 16.35% ROA demonstrate efficient capital utilization. In a positive scenario, post-turnaround earnings normalization, continued stable distributions, and valuation expansion could coincide. The analyst consensus price target of $25.50 implies 14.5% upside from current levels. Risk scenarios include persistent global chemical demand weakness and financial strain from high payout ratios. Dividend cuts would eliminate the high-yield attraction and trigger significant downside. The most likely base case scenario involves continued stable trading around current levels. Turnaround completion benefits and the CEO's ongoing buying signals should limit downside risk, while industry headwinds constrain rapid appreciation. The Q3 earnings report scheduled for November 5 represents a crucial inflection point for near-term direction. Investors should interpret the CEO's consistent buying as a positive signal while balancing against high payout ratios and industry uncertainties. Current levels offer attractive opportunities for income-focused investors, but careful monitoring of distribution sustainability remains essential.