ENBL Stock: Little-Known Energy Play with a Big Payout of 8.7%
1 High-Yield Stock to Consider
These days, when investors come across a high yield stock in the energy sector, their first reaction will likely be, “is the payout going to be cut soon?”
And to be honest, there’s a good reason to be concerned. Since the downturn in commodity prices started in the summer of 2014, many oil and gas companies have been struggling. With a deteriorating business, some companies had no choice but to cut back their dividends.
The good news is, even under the current commodity price environment, there are still energy stocks with safe and substantial payouts. Enable Midstream Partners LP (NYSE:ENBL) would be a good example.
Enable Midstream Partners is a master limited partnership that owns, operates, and develops strategically located natural gas and crude oil infrastructure assets. The partnership was formed in 2013 and completed its initial public offering (IPO) in April 2014—not exactly the best time to enter the energy business.
Yet despite the timing of its IPO and the subsequent downturn in oil and gas prices, Enable’s payout has only been increasing. (Source: “Distribution History,” Enable Midstream Partners LP, last accessed December 13, 2017.)
Right now, the partnership pays quarterly cash distributions of $0.318 per unit, giving ENBL stock an annual yield of 8.7%.
The payout is more than safe. In the third quarter of 2017, Enable generated $187.0 million in distributable cash flow while paying $138.0 million in total distributions to common and subordinated unitholders. That gives it a distribution coverage ratio of 1.36 times, a very impressive number among today’s MLPs because it leaves a wide margin of safety. (Source: “Enable Midstream Announces Third Quarter 2017 Financial Results, Quarterly Distributions and 2018 Outlook,” Enable Midstream Partners LP, November 1, 2017.)
The reason behind Enable’s solid distribution coverage lies in the nature of its business. The partnership’s portfolio consists of more than 13,000 miles of gathering pipelines, 14 processing plants with approximately 2.6-billion cubic feet per day of processing capacity, nearly 10,000 miles of interstate and intrastate pipelines, and eight storage facilities with approximately 85-billion cubic feet of storage facility. With these infrastructure assets, Enable provides gathering and processing and transportation and storage services through long-term, fee-based contracts, mostly with large-cap producers and utilities.
Other than securing its business with long-term contracts, the partnership also hedges commodity price risk through the use of financial derivatives. For 2018, the partnership expects 92% of its gross margin profile to be fee-based or hedged. It also expects to earn a between $650.0 million and $710.0 million in distributable cash flow, which would result in a distribution coverage ratio of between 1.1 times and 1.25 times. (Source: “Fourth Quarter 2017 Investor Presentation,” Enable Midstream Partners LP, last accessed December 13, 2017.)
A Growing Business
The best part? While many energy companies are struggling, Enable has actually been growing its business. Due to continued rig activity from the partnership’s gathering and processing system, Enable’s per-day natural gas gathered volume has been growing for seven consecutive quarters. In the transportation and storage segment, the partnership is well positioned to capitalize on the growing natural gas demand in the mid-continent, Gulf Coast, and Southeast regions.
For a partnership that’s willing to return cash to investors, a growing business will likely lead to higher payouts down the road. Combined with its safe current yield of 8.7%, Enable Midstream Partners is a top dividend stock to consider.