Crestwood Equity Partners LP: Earn a Rock-Solid Yield of 6.6%
1 High-Yield Stock to Consider
“For those searching for a high-yield stock to add to their income portfolio, Crestwood Equity Partners deserves a serious look.”
That’s what I told readers of Income Investors in the beginning of last year. In that article, I explained why Crestwood Equity Partners LP (NYSE:CEQP) was one of the best high-yield opportunities on the market.
I hope you took advantage of that piece. Since the article was published, CEQP stock has surged more than 34%. And just as I expected, the partnership continued to pay oversized cash distributions to unitholders.
Of course, given the inverse relationship between dividend yield and stock price, the rise in Crestwood Equity Partners LP stock means its yield is not as high as before.
Back when I wrote that article, the partnership was offering a jaw-dropping yield of nine percent. After the rise in its unit price, CEQP stock’s current annual yield stands at 6.6%.
Still, a 6.6% yield is nothing to sneeze at. To give you an idea, the average dividend yield of all S&P 500 companies is a measly 1.9% at the moment. (Source: “S&P 500 Dividend Yield,” Multpl.com, last accessed May 15, 2019.)
In other words, even after the surge in Crestwood’s stock price, the partnership still offers a yield that’s more than three times the benchmark’s average.
And based on what CEQP has been doing, its generous yield looks solid as ever.
Crestwood Equity Partners LP: Still an Income Opportunity
Headquartered in Houston, Texas, Crestwood Equity Partners is a master limited partnership (MLP) that owns and operates midstream assets located primarily in the Bakken Shale, Delaware Basin, Powder River Basin, Marcellus Shale, Barnett Shale, and Fayetteville Shale. The partnership has three main segments: Gathering & Processing, Storage & Transportation, and Marketing, Supply & Logistics.
Through these segments, CEQP provides a wide range of midstream services, such as the gathering, processing, compression, storage, and transportation of natural gas; the storage, transportation, terminalling, and marketing of natural gas liquids (NGLs); and the gathering, storage, transportation, terminalling, and marketing of crude oil, among others.
The neat thing about these businesses is that they are largely fee-based. As a matter of fact, Crestwood Equity Partners is expected to generate 84% of its earnings before interest, tax, depreciation, and amortization (EBITDA) this year from take-or-pay and fixed-fee contracts. (Source: “Investor Presentation May 2019,” Crestwood Equity Partners LP, last accessed May 15, 2019.)
The partnership also has a high-quality customer base. Among its customers are well-known energy companies such as Royal Dutch Shell plc (NYSE:RDS.A), Williams Companies Inc (NYSE:WMB), Total SA (NYSE:TOT), and Exxon Mobil Corporation (NYSE:XOM), just to name a few.
By doing business with high-quality customers through fee-based contracts, Crestwood Equity Partners LP can generate a predictable stream of cash flow, despite commodity price volatility.
Just take a look at the partnership’s financials and you’ll see how solid its business is. In the first quarter of 2018, CEQP generated $68.3 million in distributable cash flow. To put this in perspective, that amount was 60% more than what was needed to cover its cash distributions for the quarter. Compared to other midstream MLPs, that’s a very wide margin of safety. (Source: “Crestwood Announces First Quarter 2019 Financial And Operating Results,” Crestwood Equity Partners LP, April 30, 2019.)
The business has also been growing. In the first quarter, Crestwood Equity Partners generated adjusted EBITDA of $115.3 million, representing a 13% increase from a year ago.
2019 is shaping up to be another solid year for Crestwood. For the year, management expects the partnership to earn $500.0 million to $530.0 million in adjusted EBITDA, which at the midpoint would represent a 23% increase year-over-year. Distributable cash flow, on the other hand, is projected to grow by around 30% to a range of $275.0 million to $305.0 million.
The best part is that if things go as planned, CEQP’s cash distributions would be more than safe. “At these guidance ranges we would expect our full-year distribution coverage ratio range to increase to 1.5x to 1.7x,” said Chief Financial Officer Robert Halpin. (Source: “Crestwood Equity Partners LP (CEQP) CEO Robert Phillips on Q1 2019 Results – Earnings Call Transcript,” Seeking Alpha, April 30, 2019.)
The Bottom Line on Crestwood Equity Partners LP
At the end of the day, there are companies with even higher yields than what Crestwood Equity Partners LP is offering. But after taking into account the partnership’s stable business model and rock-solid financials, you’ll see that CEQP remains one of most attractive income opportunities on the market.