An interesting company that has caught my attention recently: Green Plains Partners LP (NASDAQ:GPP). Now, when you see a dividend yield of over 14%, it might make you skeptical. However, in the case of GPP, I believe there’s more to it than meets the eye.

GPP operates in the midstream industry of the ethanol sector, providing fuel storage and transportation services. Although it’s not a major player, it benefits from a solid partnership with Green Plains (GPRE), one of the largest ethanol producers in the US. This partnership strengthens GPP’s position and helps generate strong free cash flows, supporting its high dividend yield.

Speaking of ethanol, the outlook for this industry is quite promising. Recent reports indicate increased production volumes in the US. In fact, GPP’s own product volumes have grown by 5.5% year over year to 208.1 million gallons. Ethanol production levels in the US are at their highest since December 2022, and the trend is upward.

However, there are challenges to consider. Negative sentiment surrounding ethanol’s impact on the climate might put pressure on government officials to take action. This could potentially affect the industry’s volumes. Nevertheless, GPP still has a market through its significant ethanol exports, as global demand remains strong and less scrutinized than in the US.

In terms of financials, GPP has built a strong balance sheet, which is crucial for supporting its operations efficiently. The CEO, Todd Becker, has emphasized the consistent cash flow and reliable operations that allow the company to maintain its cash distribution to shareholders. GPP has also strategically accumulated cash reserves and has access to a committed credit facility to cushion any operational challenges while continuing to distribute dividends.

Now, let’s talk about that enticing yield of 14.8%. Although high dividend yields can often be a red flag, GPP’s dividend history has remained stable over the years. Despite fluctuations in the share price, investors have enjoyed consistent dividends that have helped offset potential losses.

Of course, every investment has its risks. For GPP, it’s important for companies in the sector to maintain good margins to ensure profitability. However, GPP has shown positive signs with a significant increase in Ultra-High Proteins sold, contributing to stable margins. This diversification helps mitigate risks associated with the industry.

Looking at GPP’s financials, the company has made improvements. Current assets have grown by 9.5% year over year, driven by higher accounts receivables. Debt levels have remained disciplined, sitting at $58.6 million, which is manageable considering GPP’s levered free cash flow of $30 million in the trailing twelve months.

So, how does GPP stack up in terms of valuation? Paying around a 7x forward earnings multiple seems fair, considering the industry it operates in and its estimated growth. The valuation is just slightly above its 5-year average price-to-earnings ratio of 6.7, and the company boasts similar margins as well. When compared to a similar company like Summit Midstream Partners LP (SMLP), GPP comes out ahead with a lower valuation and better margins.

To wrap it up, I believe GPP presents an appealing opportunity for long-term investment. With its exposure to the ethanol industry and strong demand, the company’s high dividend yield appears sustainable. As utilization rates have room to grow, a slight dividend raise may be on the horizon. Considering its valuation and growth potential, now seems like an opportune time to consider GPP as a long-term position.