There's no rule that high-yield stocks can't produce great capital gains for their investors. Want proof? Alon USA Partners, L.P. (NYSE: ALDW), NextEra Energy Partners (NEP -1.73%), and Triton International Limited (TRTN) all pay out above-average yields and saw their share prices soar in 2017.
What's driving the gains, and could there be more profits ahead? Let's take a closer look at each to find out.
Alon USA Partners, L.P.: Up 63%
Alon is a master limited partnership (MLP) that's in the oil-refining business. Like all MLPs, Alon doesn't have to pay corporate taxes as long as its profits are paid out to its unitholders as a quarterly distribution. Alon's main asset is a crude oil refinery located in Big Spring, Texas.
Like most oil and gas companies, the collapse in energy prices a few years back hit Alon's profits -- and stock price -- very hard. That forced the company's distribution to shrink considerably. However, the share price had been hit so hard that investors were still earning a 4% yield at the beginning of the year in spite of the slimmed-down payout.
Over the summer, investors had to hold their breath as Hurricane Harvey plowed through Texas. The superstorm disrupted the Texas oil markets but, thankfully, Alon's assets were untouched. When that stroke of luck combined with the general recovery in energy prices, Alon's profits -- and dividend -- rebounded sharply. Investors have responded to the surging profits by bidding up shares.
Is the prosperity here to stay? Unfortunately, investors won't get a chance to find out. Alon's majority shareholder -- Deltek US Holdings (DK 0.12%) -- recently decided to buy out the company. Alon's investors will receive 0.49 shares of Delek for each share of Alon that they currently own once the deal closes.
NextEra Energy Partners: Up 68%
NextEra Energy Partners is a yieldco that has had an incredible year. This partnership raises capital and then buys large-scale renewable energy assets (think big wind and solar projects). The company then sells its power to utilities under long-term contracts and returns the profits to its shareholders in the form of a growing distribution.
NextEra started off 2017 with a yield of nearly 5%, which easily qualifies it as a high-yield stock. However, the company consistently nudged its distribution higher throughout the year as new projects came on line. Investors applauded the consistent results by sending the share price higher.
Moving forward, NextEra Partners still looks like it has plenty of room to run. The world continues to rapidly ditch fossil fuels in favor of renewables, which is a trend that probably won't reverse itself anytime soon. In fact, NextEra Partner's management team is so bullish on the company's long-term prospects that are projecting annual distributions bumps of 12% to 15% annually over the next few years.
Triton International Limited: Up 150%
Triton is the world's largest lessor of intermodal containers, which are those big steel boxes you see on ships, railroads, and trucks. Triton buys the containers in bulk and then leases them out to shipping lines under long-term contracts.
Triton International was formed in 2016 when two companies -- Triton Container International and TAL International Group -- merged. The deal transformed Triton into the industry's top dog, allowing it to enjoy great economies of scale when compared to competitors like Textainer (TGH 0.08%).
However, despite its gargantuan size, the company still depends on a healthy shipping environment to generate profits. That's a big problem when the entire containership industry goes through a massive downturn. As a result, Triton's net income and stock price took a big step backward in 2016.
Thankfully, a series of fortunate events has allowed the entire industry to recover, which has been a boon for Triton's bottom line. That fact has given investors some confidence that the good times are here to stay and has led to a soaring share price.
Even after accounting for the huge year-to-date gains, Triton's stock still yields a very strong 4.5%. If the containership industry's troubles are truly in the rearview mirror, then it's possible that the good times can continue from here.
Are any worth buying?
I've personally been burned several times by buying high-yield stocks, so I have a natural aversion to companies that offer yields that look too good to be true. However, among these three stocks, I must admit that I find NextEra Energy Partners to be the most intriguing. The company's surging share price is helping to lower its cost of capital, which could help it to acquire new projects at an even faster rate. If true, the company could be well positioned to put up a repeat performance in 2018.