Noble Midstream Partners LP: The Best 8% Yield on the Market?
1 High-Yield Stock to Think About
Finding high-yield stocks is easy. All you need is to use any of the stock screeners available on the Internet, and you’ll instantly see companies paying investors seven, eight, and even 10%.
The difficult part is finding high-yield stocks that are actually safe. You see, everyone wants to earn oversized dividends without taking any risk. As a result, safe high-yield stocks have always been in strong demand. And as investors rushed to buy these stocks, their prices got bid up, which in turn caused their yields to drop.
In other words, companies that still offer an ultra-high yield in this day and age don’t seem like the safest bets. The biggest concern is that if a company cannot make enough money to cover its dividend, it would have no choice but cutting its payout down the road. And when that happens, not only would shareholders get a smaller income stream, but they may also have to face a possible drop in the value of their investments because most dividend cuts are perceived as bad news by market participants.
The good news is that for those willing to do the research, it’s still possible to find safe dividend stocks with oversized yields. On that front, Noble Midstream Partners LP (NYSE:NBLX) serves as a good example.
Noble Midstream Partners LP: Delivering Consistent Distribution Growth
Headquartered in Houston, Texas, NBLX is a master limited partnership (MLP). It was created by Noble Energy Inc (NYSE:NBL) to own, operate, develop, and acquire midstream infrastructure assets.
The partnership focuses primarily on two of the most resilient oil basins in the country: the DJ Basin in Colorado and the Delaware Basin in Texas. In these areas, Noble Midstream Partners LP provides crude oil, natural gas, and water-related midstream services for Noble Energy and for third-party customers.
Noble Midstream Partners LP completed its initial public offering (IPO) in September 2016, so it is a relatively new name to stock market investors. Still, in the rather short period of time since it went public, the partnership has made a name for itself thanks to its strong distribution growth.
Consider this: When the partnership was formed, it had a minimum quarterly distribution rate of $0.375 per unit. Today, it pays $0.6132 per unit, representing a total increase of 63.5%. (Source: “Noble Midstream Partners LP Dividend Date & History,” Nasdaq.com, last accessed May 7, 2019.)
Nowadays, most dividend-paying companies would be proud if they could raise their payout once a year. Noble Midstream, on the other hand, decided to do so much more frequently. Since its IPO, the partnership has raised its payout every single quarter.
The latest distribution hike came last month, when the Board of Directors of NBLX’s general partner declared a cash distribution of $0.6132 per unit for the first quarter of 2019. The amount represented a 20% increase year-over-year and a 4.7% increase sequentially. (Source: “Noble Midstream Partners Increases Quarterly Distribution,” Noble Midstream Partners LP, April 25, 2019.)
Trading at $30.71 per unit at the time of this writing, NBLX stock offers an annual distribution yield of eight percent.
A Safe and Rising Income Play
Now, I know what you are wondering. The energy markets are known for being volatile and hard to predict, so can this energy stock actually afford all these distribution hikes?
Well, if you take a look at the partnership’s financials, you’ll see that the answer is a resounding “yes.”
In 2018, Noble Midstream Partners LP generated $185.0 million in distributable cash flow, which resulted in a distribution coverage ratio of two times. That is to say, the partnership covered its payout twice over. (Source: “Fourth Quarter 2018 Earnings & 2019 Guidance Call,” Noble Midstream Partners LP, last accessed May 7, 2019.)
In the first quarter of 2019, things were equally solid. For the quarter, the partnership generated $54.0 million in distributable cash flow, which was 90% more than what was needed to meet its distribution obligations. (Source: “Noble Midstream Partners Reports First Quarter 2019 Results,” Noble Midstream Partners LP, May 3, 2019.)
In other words, despite all the distribution hikes, NBLX stock’s payout was more than safe.
We know that past performance does not guarantee future results, but going forward, the partnership plans to continue that track record. According to the latest investor presentation, management expects Noble Midstream Partners to achieve annual distribution per unit growth of 20% through 2022 while keeping its distribution coverage ratio above 1.3 times. (Source: “First Quarter 2019 Earnings,” Noble Midstream Partners LP, last accessed May 7, 2019.)
Bottom Line on Noble Midstream Partners LP
Right now, Noble Midstream Partners LP stands as one of the safest eight-percent yielders on the market. And if the partnership can achieve its management’s guidance, investors who purchase NBLX stock today would collect an even higher yield-on-cost in the future.