An Insider Bought High Yield NuStar GP Holdings LLC

William Greehey, who sits on the Board of Directors at NuStar GP Holdings, LLC (NYSE:NSH), purchased 28,600 shares of the company’s stock on December 7th at an average price of $27.03 per share. NuStar is a $1.3 billion market cap company which serves as the general partner of NuStar Energy L.P. (NYSE:NS), a pipeline company transporting petroleum products. We’re always interested in investigating purchases of a company’s stock by insiders; economic theory tells us that diversification is one of the most important principles in investing, so insiders should generally avoid buying the stock. As a result, we think that insider purchases can often reflect extraordinary confidence in the company and studies show that on average- though not always- stocks bought by insiders tend to outperform the S&P 500 (read more about studies on insider trading). Since the beginning of November, Greehey has purchased over 200,000 shares of the company and now owns 7.8 million shares. In addition, the company’s CFO bought 2,000 shares in mid November; consensus insider buying is a particularly bullish signal.

NuStar GP Holdings logo

NuStar GP Holdings, LLC is best looked at as an income stock. The current dividend yield is 7.9%, with the company increasing its dividend payment at least once a year since 2007. The most recent increase came in November, with the distribution increasing to 54.5 cents from 51 cents in the August payment. Cash flow has also been good; if we combine cash flow from operations with cash flow from investing activities (which essentially consists of investments in and distributions from NuStar Energy L.P.), the company has brought in a bit over $60 million in cash flow, only slightly below what it in turn has paid out. The LP, meanwhile, experienced a slight decline in its most recent quarter compared to the same period in 2011. It also pays a high yield, with a good record of not cutting its dividends and a stock price that has fallen 16% in the last year. It also has been seeing insider buying recently (see our data on insider purchases at NuStar Energy L.P.).

NuStar GP Holdings, LLC, in addition to its dividend yield, is at least somewhat protected from broader market fluctuations with a beta of 0.7. First Eagle Investment Management, an asset manager founded in 1983 and until recently managed by Jean-Marie Eveillard, owned 3.2 million shares of the stock at the end of the third quarter. This investment was worth over $100 million at that time (check out First Eagle’s favorite stocks).

Other than First Eagle, there’s little interest among notable investors in NuStar. Kinder Morgan Inc (NYSE:KMI), however, was the most popular energy stock among hedge funds in the third quarter of 2012 (find other top energy stocks). Kinder Morgan and Enbridge Inc (NYSE:ENB) are two large cap pipeline companies, with smaller though still significant dividend yields. For what it’s worth, the forward earnings multiple at these two companies are higher than at NuStar as well; while Kinder Morgan’s revenue and earnings have been up we would think that most if not all of that is due to recent acquisitions. Other pipeline companies which are smaller than these two- though with market caps over $1 billion- and high dividend yields include Regency Energy Partners LP (NYSE:RGP), Buckeye Partners, L.P. (NYSE:BPL), and Boardwalk Pipeline Partners, LP (NYSE:BWP).

It’s interesting to see insiders buying across the NuStar organization, both at the LP and now quite strongly at the LLC. Certainly the dividend yields at both stocks are high enough for income investors to take a closer look and make sure that the company will be able to maintain dividend payments going forward.

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