Westlake Chemical Partners: A Rare Blend of Safety and Yield in a Volatile Market

Westlake Chemical Partners LP (NASDAQ: WLKP) has quietly become one of the most compelling income plays in the chemical sector, offering investors a rare combination of stability, dividend power, and undervaluation. With an intrinsic value-to-price (IV/P) ratio of 1.70, a free cash flow yield of 46.10%, and an 8.59% dividend yield, this master limited partnership (MLP) is a hidden gem in a market starved for yield. Yet, it remains overlooked by institutional investors, creating a buying opportunity that could pay off handsomely.

The Undervaluation Case: IV/P of 1.70 and a Free Cash Flow Machine

The IV/P ratio of 1.70 suggests that Westlake Chemical Partners' intrinsic value is 70% higher than its current stock price. This metric is a red flag for undervaluation, as it implies the market is underestimating the partnership's ability to generate cash and sustain its distribution.

But what truly stands out is the partnership's free cash flow (FCF) yield. At 46.10%, this metric—calculated by dividing FCF by market cap—reveals a cash flow engine that is firing on all cylinders. To put this in perspective, a 46% FCF yield is off-the-charts for most companies, even in the chemical sector. . Such a yield suggests that WLKP's stock is not just undervalued but priced as if it's on life support, even though its cash flows are robust.

Dividends: A Steady Income Stream in a Volatile World

WLKP's dividend yield of 8.59% is another standout feature in today's low-yield environment. The partnership has paid a distribution every quarter for 43 consecutive periods, a track record that speaks to its operational resilience. Even in Q1 2025, when distributable cash flow (DCF) dropped 64% year-over-year due to a planned turnaround at its Petro 1 facility, management maintained the $0.4714-per-unit payout.

This reliability stems from its contract-based revenue model. 95% of WLKP's ethylene production is sold to its parent, Westlake Corporation, under a fixed-margin agreement. This structure shields the partnership from ethylene price volatility, ensuring steady cash flows regardless of commodity markets. The agreement guarantees a $0.10-per-pound margin, net of operating costs and maintenance expenses, while reserving funds for future turnarounds. This model has kept distributions intact even during operational hiccups like the Petro 1 shutdown.

Why Institutions Overlook WLKP—and Why You Shouldn't

Institutional investors often shy away from smaller MLPs like WLKP, favoring larger, more liquid names. But this aversion creates an opportunity. WLKP's market cap of just $805 million makes it small enough to be underfollowed but large enough to have a solid financial backbone. Its fixed-margin contracts and predictable cash flows also reduce the complexity that deters many institutional investors.

The recent Q1 2025 results, while temporarily weakened by the Petro 1 turnaround, highlight the partnership's long-term strength. Operations at Petro 1 resumed in April, and management has stated no major turnarounds are planned for years. DCF should rebound, lifting the trailing twelve-month coverage ratio from its current 0.82x back toward its historical average of 1.06x.

Risks to Consider

No investment is without risk. WLKP's exposure to feedstock prices (like ethane) and energy costs could squeeze margins if input costs rise sharply. The partnership also faces regulatory and climate-related risks common to the chemical sector. Additionally, its reliance on Westlake Corporation creates counterparty risk, though their longstanding relationship mitigates this.

The Bottom Line: A Buy with Upside and Income

Westlake Chemical Partners is a textbook example of a value-driven income investment. Its undervalued valuation, fortress-like cash flows, and recession-resistant revenue model make it a rare bird in today's market. With a dividend yield nearing 9% and the potential for a revaluation as its DCF recovers, WLKP offers asymmetric upside.

Investors should act now while the stock remains in the shadow of institutional neglect. . The partnership's combination of safety and yield is a compelling reason to add it to a diversified portfolio—and to hold it for the long haul.

Action Item: Consider a position in WLKP for income and capital appreciation. Monitor DCF recovery in Q2 2025 and any changes to its distribution coverage ratio as key metrics to watch.