For the income stock focused investor, what could be more appealing than a high current yield combined with steady dividend increases?
For the last three years, the energy infrastructure services sector (also called energy midstream) has gone through significant financial restructuring, resulting in no dividend growth, and even dividend rate reductions.
The period of restructuring is now complete, and investors can expect quality midstream companies to return to dividend growth models. For many of these companies, the market has not yet rewarded to new financial strength with higher share prices.
Historically, the average annual total returns from dividend growth stocks ends up close to the average yield plus the average dividend growth rate. Right now, the average yield for the Alerian MLP Infrastructure Index (AMZ) sits a 7.83%.
For 2019, the MLP sector is forecast to increase distributions by 6%. A little math shows the potential for mid-teens total returns with a large portion of that return coming from growing cash distribution payments.
A quick note. Prior to the recent round of financial restructuring, most energy midstream companies were organized as master limited partnerships (MLPs). This business structure usually comes with IRS Schedules K-1 for tax filing.
One consequence of the changes over the last few years, is that many energy infrastructure companies have elected to change business type to become issuers of the easier at tax time Forms 1099. With the high-yield recommendations in my Dividend Hunter service I only include 1099 reporting companies.
Mid to late April is Q1 dividend announcement time in the midstream sector. Here are five companies with great yields that are growing the dividends/distributions earned by investors.
EQT Midstream Partners LP (EQM) just announced its 24th consecutive quarterly distribution increase. EQM is a natural gas gathering and pipeline focused MLP, servicing the Marcellus Shale.
The payout was increased by 1.3% this quarter, and EQM now yields 9.9%.
EnLink Midstream LLP (ENLC) is a 1099 reporting company that provides integrated midstream services across natural gas, crude oil, condensate, and NGL commodities.
After two years of level dividends, the company restarted quarterly distribution growth a year ago.
The just announced distribution included a 1.5% increase over the previous rate. ENLC currently yields 9.0%.
Holly Energy Partners LP (HEP) provides midstream services to refiner HollyFrontier Corp. (HFC). HEP has increased its distribution for 58 consecutive quarters. The recently announced increase of 0.4% brings the HEP yield up to 9.4%.
Tallgrass Energy LP (TGE) is a crude oil and natural gas pipeline company. Tallgrass has elected to be taxed as a corporation and sends out Form 1099 to investors.
For this quarter, the TGE dividend was increased by 1.9%. Current yield is 8.6%.
Plains All American Pipeline LP (PAA) just restarted dividend growth after two dividend cuts in the last three years. Patient investors were rewarded with a 20% increase for the next dividend payment.
Plains owns a network of crude oil gathering, pipeline and storage facilities. It is a good play on the crude oil production in the Permian Basin.
PAA currently yields 6.0%.