Dividend Investors: Earn 6.7% Yield from This Unique Energy Stock
Dividend Investors Shouldn’t Ignore This Company
One sector that many dividend investors prefer is the oil sector. This is because oil is used around the world, with only a single market price. However, when it comes to investing into oil companies as a dividend investor, it is quite difficult because the price of oil can swing wildly.
The first concern is the volatility of the overall investment. The second is that while some companies do pay a dividend, it will be the first thing to go if an oil slump occurs.
However, there are ways to participate in the oil market without the volatility of the stock and oil price day to day. One way this could be accomplished is through the pipeline sector. And a company with great assets in this market segment is Tallgrass Energy Partners LP (NYSE:TEP).
Tallgrass has oil and natural gas assets that span across North America. TEP stock would be considered a high-dividend-paying stock, with a current yield of 6.79% and the shares trading at $46.80.
A high dividend is great, but that dividend’s growth is even more impressive. Over the past two-and-a-half years, the dividend for TEP stock has doubled.
This growth is in thanks to pipelines. Even though oil is transported through them, the related day-to-day price movements don’t affect the bottom line. Rather, what matters for Tallgrass is the pipelines’ continued use. As long as oil is flowing through the pipeline, profits are being generated.
The great thing about pipelines is that as time passes, those using them are charged more due to inflation. This makes pipelines a sort of toll business that just keeps collecting cash.
High Barriers to Entry
A pipeline business is a very difficult one to start because a large amount of capital is needed to acquire land rights and government approval is necessary. And even if these two steps are completed, then building the pipeline itself requires even more capital.
That said, once operations are underway, it’s smooth sailing. Once a pipeline is built, the only costs going forward should be for general maintenance. This is one of the reasons why TEP stock is a high-dividend growth stock.
The pipeline business is known for carrying debt on the balance sheet, and carrying too much debt is never a good thing. A metric that is used to measure this is the debt-to-equity ratio. A ratio that is above 50% means that a company is using debt to grow the business, which isn’t great. In the case of Tallgrass, the ratio is 46%, meaning the company is using cash flow and existing assets to grow the business.
Final Thoughts on TEP Stock
For patient dividend investors, TEP can potentially be a great stock to own. This is a company with unique set of assets and should be considered by dividend investors.
This would be a great time to consider owning TEP stock, given the money market products and that savings account are offering rates near zero. Also keep in mind the control over the balance sheet and how shareholders have been rewarded with a high dividend yield.
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